One of Gordon Brown’s Treasury ministers said at the time that the Chancellor’s £5 billion a year pension-fund tax raid in 1997 would be bad for pensions and the economy.

Lord Simon of Highbury, the former BP chairman and Europe Competitiveness Minister, wrote a letter in which he gave warning that scrapping tax credits on pension funds would damage pension provision and investment.

The revelation will embarrass the Chancellor as he faces his first House of Commons grilling on the furore today. Mr Brown is to make the unusual move of attending an opposition debate to answer critics head on.

It is the first time that he has defended himself against a no-confidence vote, with the motion declaring “this House has no confidence in the Chancellor’s handling of occupational pensions”.

Mr Brown has insisted repeatedly that the tax raid was aimed at encouraging investment in Britain, but the letter by Lord Simon, written just six days before he left BP to become European Competitiveness Minister, says that the proposed tax change “was a particular concern to us given its impact on investment in the UK and on pension provision”.

In the letter to National Association of Pension Funds, Lord Simon insisted that the change would “reduce funds available for reinvestment and that the attitude of investment towards Britain could be “significantly jaundiced”.

Since Mr Brown made the tax change, business investment has dropped from over 11 per cent of GDP to 9.5 per cent, the lowest level since records began. Company pension funds have also plunged into massive deficits, leaving many pensioners facing a retirement of poverty.

George Osborne, the Shadow Chancellor, said: “We know that Gordon Brown ignored civil servants on the pensions tax. Now we discover that he ignored the views of one of his own ministers, a distinguished business leader.”

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