The state retirement age would rise to 66 within seven years under a Conservative government, ten years earlier than planned, George Osborne will announce today.

The change, saving £13billion a year from 2016, will be portrayed by the Shadow Chancellor as a tough measure showing how serious he is about reducing the soaring budget deficit, expected to rise this year to £175billion.

In an announcement apparently timed to coincide with Mr Osborne’s speech, the Chancellor Alistair Darling will today propose pay freezes in the coming year for 40,000 GPs, senior NHS managers, judges and top civil servants, with minimal rises for more than 700,000 other public sector workers, including hospital doctors and dentists. Army generals and the lower ranks would be exempt from the pay squeeze in recognition of the pressures that they face in Afghanistan.

Under current government plans the pension age for men was due to go up to 66 in 2026, to 67 in 2036 and by a further year each decade. The women’s pension age was due to rise to 61 next year, 62 in 2012, 63 in 2014 and 64 in 2016.

The Conservatives will set up a review to determine how the first rise could be made ten years earlier, how it could be linked to the rise in the women’s age and how the men’s age would rise gradually in future years.

Mr Osborne will combine the announcement with a pledge to follow Labour in linking the old-age pension to earnings rather than prices.

He is expected to say that the rise in the pension age is “another one of those trade-offs any honest government has to confront”. In theory, his move could save £130billion in the course of the first decade.

Mr Osborne will say that most experts, including Lord Turner of Ecchinswell — who carried out a far-reaching review of pensions for the Blair Government — now believe that the target date of 2026 was too far off. If the Tories win next May, legislation to change the age is likely to be introduced early in the next Parliament.

Mr Osborne will say: “No one who is a pensioner today, or approaching retirement soon, will be affected. But this is how we can afford increasing the basic state pension for all.” The plan will be part of a series of measures to show how the Tories would cut the budget deficit. He aims to go faster and farther than Labour pledges to halve the deficit in four years.

The Times understands that Mr Osborne will not drop his proposals, announced two years ago, to cut inheritance tax for estates worth up to £1million. The plan, seen as one of the reasons that Gordon Brown abandoned an early election in 2007, has been attacked as inappropriate at a time when the recession is hitting working families, but the Shadow Chancellor believes that it remains popular and that it would be seen as an act of bad faith to ditch it.

David Cameron told the conference yesterday that the “dangerous” deficit threatened public services and those who relied on them most. The Conservatives would confront the deficit because it threatened higher interest rates and taxes. “Next year we are forecast to borrow 14 per cent of our national income,” he said. “That is twice as much as Denis Healey was borrowing in 1976 when we virtually went bankrupt.”

Today’s speech comes after Mr Osborne’s announcement yesterday that the Conservatives would waive employer national insurance on the first ten employees of any new business created within the first two years of a Tory government. He said that the move, which was the centrepiece of a £250million jobs package, could create and safeguard 60,000 jobs and was “just another example of the Conservatives being the party of jobs at a time when Labour are the party of mass unemployment”.

Aides said that the exemption would apply to the first ten employees hired by a new business during its first year, up to the upper earning limit of £844 a week per employee, or about £44,000 a year. For a business with ten employees on an average salary of £25,000, Mr Osborne calculates that this could save up to £25,000 a year at current tax rates.

The proposal was welcomed by the Federation of Small Businesses. A spokesman said: “Since 2002, small firms have created over 80 per cent of all new jobs. This proposal will help to create and grow more small businesses that will serve as a catalyst for economic recovery.”

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