Baroness Jay, the Leader of the Lords, told The Independent on Sunday that the heads of other faiths should also be given a role in the Upper Chamber in order to make it "more representative" of Britain.
Ministers plan to refer the matter to the Royal Commission on the future of the Lords. They will make it clear that the Commission should take into account the multicultural make-up of modern Britain.
"If we're going to have any kind of spiritual faith representation it's good to have representations from other faiths," Lady Jay said. "We wouldn't want to feel that we only had one faith represented."
If the Commission concludes that the reformed Upper Chamber should include a religious element, the number of Anglican bishops is almost certain to be reduced to make way for representatives of other faiths. Non-Anglicans and non-Christians already sit in the Lords but they are not there officially on behalf of their faiths.
The proposal would put the Government on a collision course with the Anglican Church. George Carey, the Archbishop of Canterbury, has told the Government that he would be happy for other faiths and denominations to be represented but that any attempt to reduce the Anglican bishops would be fiercely resisted.
The position of the 26 Church of England bishops is seen as deeply symbolic of the link between Church and State and changing it would be interpreted as the first move towards disestablishment. Senior Anglican churchmen are already insisting that they will not accept "disestablishment through the back door".
Lord Irvine of Lairg, the Lord Chancellor, has asked the Church of England to agree to reduce the number of bishops in the House of Lords in order to make way for representatives from other religions. Five of the 26 bishops in the House of Lords - Canterbury, York, London, Winchester and Durham - sit automatically and the others take turns according to seniority.
Ministers on the Cabinet committee discussing reform of the Lords are determined to open it to other religions, perhaps allowing each faith to nominate a representative. They believe it is unacceptable that there are no representatives of Roman Catholicism, Methodism, Judaism, Islam, or Hinduism in the Lords. Lord Jakobovits, the first former chief rabbi to sit in the Upper Chamber, was appointed after retirement and does not play a formal religious role.
The Lord Chancellor met Dr Carey in February to discuss the role that bishops should play in a reformed Upper Chamber. He assured him that the Government had no plans to disestablish the Church of England, but he said that ministers wanted to include representatives of other faiths.
The Archbishop said the Church was keen for the second chamber to be inclusive, but he stressed that Anglican bishops should be given a unique constitutional role, in keeping with the Church of England's relationship with the State.Reuse content