Tony Blair and Gordon Brown are putting together a compensation package for employees who lost their pensions when companies went bust.

The move follows pressure from the leader of the opposition and growing unrest on the government's backbenches.

Downing Street confirmed on Thursday that talks between the prime minister, chancellor and pensions secretary Andrew Smith had taken place over recent days.

Number 10 said progress was being achieved and signalled that an announcement can be expected "in the next few days".

Warning

Michael Howard yesterday warned the prime minister that "time is running out" for a decision on compensating pensioners who have lost out in company bankruptcies.

The Conservative leader said there was "widespread support" across all parties for compensation to be paid to the estimated 60,000 people who have lost pension benefits following the collapse of their schemes.

Speaking during prime minister's questions, he pointed to previous statements by Blair that the government was considering its final position on the issue.

"It seems that it will take a prime ministerial decision to compensate them, he has given hints that he will act.  Will he now do so?" asked Howard.

Blair said he hoped to be in a position to make an announcement "very shortly".

But that prompted Howard to warn that "time is running out".

"This actually isn't a party political point. There is support from all quarters of this house for this measure," he added.

Pressure

A majority of MPs from all parties have signed parliamentary motions calling for compensation for ex-employees affected by the collapse of their firm.

Labour backbencher Kevin Brennan has threatened to table amendments to the Pensions Bill compelling compensation if the government does not move in this direction.

The prime minister said he would "announce shortly what it is we are able to do for people".

Speaking during business questions in the Commons, leader of the House and Welsh secretary Peter Hain paid tribute to Brennan's work on behalf of his Cardiff constituents.

He said that ministers do want to compensate the former employees of the ASW firm in the town who were "disgracefully robbed" of their pensions.

But he added that: "The government is determined to deal with this in a way that does not read across to cases that do not fall into this category."

The failure to do this could lead to compensation claims worth "potentially billions of pounds of taxpayer's money".

Hain confirmed that MPs will spend three days debating the pensions bill next week - with over 100 government amendments due for discussion.