THE prime minister is involved in a row with Lord Falconer, the former lord chancellor, over the size of his pension.

Falconer had a showdown meeting with Gordon Brown last month in Downing Street but, according to insiders, he failed to persuade Brown of his entitlement to an annual six-figure sum.

If Brown stands firm against Falconer, a key ally and former flatmate of Tony Blair, it will be seen as an unprovoked act of aggression by fellow Blairites.

One informed source said: “The meeting between Falconer and Brown took place behind closed doors with no officials present. It is all very delicate. It raises the possibility that as a last resort Falconer may have to take legal action against the government.”

Falconer, who gave up a lucrative career in the legal profession to give 10 years’ service as a Labour minister, is said to feel that he has a con-tractual entitlement.

According to the Cabinet Office, however, he is entitled to only £52,193. He is also permitted to receive a lump sum, which is yet to be decided, because of his special position as head of the judiciary for the past four years.

As lord chancellor he was entitled to an annual salary and a pension higher than any other cabinet minister, including the prime minister. However, he opted to take the standard salary of a cabinet minister based in the Lords - worth £104,386 last year - rather than his full salary entitlement of £232,900. When he became lord chancellor and constitutional affairs secretary in 2003, after Blair’s “botched” reshuffle, the historic post of lord chancellor was supposed to be abolished. However, a U-turn by the government led to the title being retained.

Those close to him say Falconer does not regard himself as a rich man. “Unlike some of his contemporaries he did not spend years earning a fortune at the bar,” said one source.

A spokesman said: “The payments are now being made to him in line with the PM’s statement of June 19, 2003.” That was the date when it was agreed that Falconer would take the reduced salary of a regular secretary of state.

- TWO Labour donors who have given the party nearly £1.7m have withdrawn their support amid growing concerns about Gordon Brown’s handling of the economy.

Sir Christopher Ondaatje, a Canadian publisher, and David Potter, chairman of Psion computers, are understood to be worried by the high levels of consumer debt and the recent “run on the bank” by customers of Northern Rock.

Their decision comes as a further blow to Brown, who is struggling to regain credibility after his decision not to call a snap election. Labour is also significantly in the red, with net debts of £20m, including £14m of outstanding loans.

Ondaatje, 74, donated £1.6m to Labour since 2001. It is understood, however, that he has since become disillusioned by politics and now fears that Britain is on the verge of financial crisis.

A source close to Ondaatje said: “Quite frankly, this is a messy time in British politics. Both leaders seem to be heading for the line knowing full well that there is an imminent financial crisis round the corner.

“It will be a pack of cards that will start with the housing market and then spread to other institutions. He doesn’t think either party knows how to deal with it. He is very disillusioned with being involved in politics. He is unlikely to do that [donate] again.”

Potter, who has donated nearly £100,000 to Labour, has similar concerns. He also objected strongly to Blair’s decision to invade Iraq.

A source close to Potter said: “He does not think the economy is quite as strong as people might assume. He thinks there are considerable dangers and that after a period of good demand the next five years are not going to be quite as good. He is also concerned about the centralised, nanny state, authori-tarian Britain.”

Other donors, however, remain committed Labour supporters. Lord Paul, the industrialist, gave £25,000 to Brown’s leadership campaign. Paul, a long-term admirer of Brown, recently bought 6,000 copies of Brown’s book, Courage, to give to secondary schools. “Whatever I can afford at the time I will give,” Paul said.

Sir Gulam Noon, the food tycoon whose nomination for a peerage was blocked after he was advised by Labour not to declare a £250,000 loan, also remains supportive. He is now considering converting his loan into a donation.

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