The basic state pension will rise in April to £84.25 for single pensioners and £134.75 for couples, to keep pace with inflation - as part of a package which, Gordon Brown claimed, will add £10bn a year to the incomes of the elderly. 

By contrast, pensions would have gone up by £7bn if Mr Brown had raised the basic pension in line with the increase in average earnings, as the Labour government used to do 30 years ago. The poorest 10 per cent of pensioner households will be £2,175 a year better off, on average, as a result of the combined tax and benefit changes, according to Mr Brown's figures.

The Chancellor also defended the pension credit, the scheme he devised to keep the elderly out of poverty without punishing those who have saved all their lives. It has been attacked by the Tories and the Liberal Democrats, who say that it would be simpler if Mr Brown did less means-testing and paid out more on the basic pension.

But this year the benefit has given about two million pensioners a guaranteed minimum income, which will rise in April to £114.05 for single pensioners and £174.05 for couples, with an increased reward for those who have saved for their old age. The biggest beneficiaries have been women who interrupted their working lives to raise children.

Increases in age-related tax allowances will also mean that no one over 65 need pay tax on income up to £140 a week.

The figures were scathingly dismissed by George Osborne, for the Conservatives, who accused the Chancellor of "sabotage" because he has consistently opposed raising the basic pension in line with earning, even when it was suggested by Lord Turner, who was commissioned by the Government to look into the future of pensions.

Mr Osborne told Mr Brown yesterday: "The man who created the current pensions crisis is the same man who is now standing in the way of providing a solution. No wonder Lord Turner describes your position as not a contribution to a sane argument."

The Chancellor also announced a £690m package to guarantee that pensioners will continue to receive their £200 tax-free winter fuel payment, at least until the year 2009. Those aged over 80 will receive £300.

He said he had allocated £300m over three years to the "Warm Front" programme, which has already helped a million pensioners living in homes lacking proper heating and insulation. "Insulation and central heating can reduce heating bills for the typical pensioner household by £300 a year," he said. "The Government's Warm Front programme will not only be able to offer pensioner households on pension credit free installation of central heating, but we will also offer all other pensioner households without central heating £300 towards the costs of installing it."

Mr Brown praised the energy companies for agreeing to install free loft insulation to households on pension credit.

Mervyn Kohler, of Help the Aged, said: "Pensioners in some of the coldest homes in the country will welcome the increased funding to help meet the cost of installing central heating, home insulation and other energy efficiency measures.

"But pensioners will react with dismay and disbelief that Gordon Brown said absolutely nothing in his speech to ease the heavy burden of council tax."