In what would be a major policy U-turn, Britain may join Europe's common immigration policy in an attempt to curb the number of asylum seekers entering the country.
Although the Government has vowed to retain its opt-out from the European Union's Schengen agreement, which effectively ends border controls in the community, Tony Blair is now increasingly convinced membership would improve the fight against organised crime and illegal immigration.
The Schengen agreement, which includes all EU countries apart from Britain and Ireland, was drawn up in 1985 to allow free movement between member states with one secure external border. If Britain became a full member, it could share police databases on illegal immigrants with other EU states and could rely on border controls of countries such as Germany and France to keep them out. The move could also lead to the introduction of identity cards, with Britons travelling across the EU without showing their passports. While travellers entering Britain from EU member states would not have to show their passports under the "open border" policy, tough controls would still be maintained for people arriving from all other countries .
However, the move would be politically explosive. The Tories would accuse Labour of dismantling Britain's border controls and risking a flood of illegal immigrants entering the UK after coming into the EU through countries such Greece, which have weaker controls.
Ann Widdecombe, the Shadow Home Secretary, said last night: "Joining Schengen would mean a complete loss over our asylum policy because we would have to give up our border controls. The only thing it would do is give Jack Straw an excuse to blame someone else."
She added that such moves would be a further example of Labour seeking to enter Britain into "a United States of Europe by stealth".
Mr Straw, the Home Secretary, has faced mounting pressure over the number of asylum seekers amid recent public outcry over gangs of Romanian and gypsy women begging. Minister privately admit that tough new legislation cutting benefits for asylum seekers and dispersing them across the country will not be enough on its own to reduce the numbers reaching Britain.
One senior minister said: "We should use our resources and border controls more effectively if we want to keep the growing number of bogus asylum seekers and organised crime out. It may not be such a bad idea to join Schengen after all because then we could share the burden with other countries."
Ministers believe that they could win over public support for joining the treaty if it meant that there were fewer asylum seekers in Britain. "Following the recent outcry over beggars, joining Schengen has definitely moved up the agenda," a Downing Street source said.
It is unclear when a final decision will be made. Britain has promised to maintain its own border controls during this year's review of the way the EU works.
Britain is already seeking to become part of one aspect of the agreement, the Schengen Information System (SIS), under which it will share police databases relating to criminal matters and narcotic drugs. The go-ahead could be given this week because a dispute between Britain and Spain over Gibraltar has been resolved.