Although Sir Paul is not expected to be blamed personally in the inquiry report, which is due to be published later this month, there will be criticism of officers in his force investigation and ministers think the pressure may become to great for him to stay.
"We would think that senior heads will roll as a result of the inquiry's findings," a Home Office source said. "The feeling is that there should be a clear break This is a chance to change race relations for good in this country to ensure that something like this cannot ever happen again."
Sir Paul, who is due to retire next January, has made it a point of honour to promise that if the report, by Sir William Macpherson of Cluny, turned out to criticise him personally he would go.
"I have never run away from a challenge in my life. I believe that although it is going to be a painful time for us over the next few months I should have the courage to see through those reforms that will no doubt come out of the inquiry," Sir Paul has said.
The Home Secretary, Jack Straw, will also use the results of the inquiry as a benchmark for a radical shake-up of race relations in the police.
Ministers are already reviewing the Race Relations Act in the light of the report, which is also expected to accuse the Metropolitan and other police forces of "institutional racism."
The Home Secretary is considering recommendations made by the Commission for Racial Equality last year which would simplify the complaints procedure against individual police officers.
To make it easier to prove police misconduct on racial grounds, under the new Act, police officers' guilt would only have to be proven on the balance of probabilities.
At present, disciplinary proceedings are more difficult to succeed because their guilt has to be proven beyond reasonable doubt.
It would also abolish a rule protecting police officers from disciplinary action if criminal proceedings on the same matter have failed.
Similarly, their right of silence would be removed and the Police Complaints Authority would have the power to conduct its own independent investigations.
While the Government will resist imposing quotas for ethnic minorities, police forces will have to monitor their employment and promotion and report annually on whether targets are being met.
Police officers could also be asked to attend race and community courses.
"This is a very sensitive issue and legislation on its own will not stop racism within the police. We need better education on race issues to create a cultural change," the Home Office source said.
According to the source, the Government will reject the inquiry's criticism, as revealed in The Independent, of the Lawrence familys' lawyers, Michael Mansfield and Imran Khan, for their role in the ill-fated private prosecution against the five white youths suspected of the murder.
Accountability within the Metropolitan Police is also set to be improved by the Greater London Authority Bill which will set up a new, democratically accountable Metropolitan Police Authority.Reuse content