Crime memo casts shadow over Brown's relaunch plan

(EPA)

Jacqui Smith, the Home Secretary, has given a stark warning to the Prime Minister that the economic downturn could spark a rise in crime, racial tension and terrorism and also result in a cut in police numbers.

Her warning, in a leaked draft letter prepared for Downing Street, threatens to undermine the Prime Minister's attempt to launch a fightback by announcing government help towards people's fuel and housing costs. He will promise this week "to mitigate the impact on middle and lower income families".

Mr Brown will strike a more upbeat note about Britain's economic prospects than the Chancellor Alistair Darling's gloomy assessment, in a surprisingly candid weekend interview, that the country faces "arguably the worst" crisis for 60 years.

The grim picture painted by Mr Darling rocked Labour MPs: he said voters were "pissed off" with Labour; he had no idea how bad the credit crunch would become; and the Cabinet was to blame for "patently" failing to explain the party's central mission.

Mr Darling's comments came amid growing signs of tension between him and Mr Brown, who has insisted that the British economy is in comparatively good shape. They are said to be at loggerheads over whether the Treasury should underwrite mortgages to revive the housing market. Mr Brown is keen but Mr Darling more cautious.

The leaking of the Home Office's draft letter provides a difficult backdrop for Mr Brown. It said a slowdown "would place significant upward pressure on acquisitive crime [theft, robbery and burglary] and therefore overall crime figures", adding that violent crime rose by 19 per cent after the 1991-92 recession.

Police forces could face financial pressures from high fuel costs, rising salaries and a reluctance to raise council tax bills. This "might require difficult decisions over officer numbers and priorities", the letter said.

Warning of "increased public hostility to migrants" over their access to public services and jobs, it added: "There is a risk of a downturn increasing the appeal of far right extremism ... which presents a threat as there is evidence that ... experiencing racism is one of the factors that can lead to people becoming terrorists."

The Home Office insisted the letter had not been cleared by Ms Smith or sent to No 10 but said it was "appropriate that the Home Office considers the effects the economic climate may have".

Dominic Grieve, the shadow Home Secretary, said: "Now we see the consequences of Gordon Brown's mismanagement of the economy will not just hit hard-working families in the pocket but will also threaten their safety."

In a speech to the CBI on Thursday, Mr Brown will promise immediate action in Britain to help people through economic hard times and longer term international proposals to tackle the impact of the credit crunch and rising oil and food prices. "We do not have adequate means of managing it other than as nations or regional entities," he will admit.

The Prime Minister will say: "Those with substantial wealth can find a way through these difficulties; our job over the coming months is to mitigate the impact on middle and lower income families, not by gimmicks but by real help founded on fairness." That will be welcomed by Labour MPs who want higher taxes for the rich to help the least well off.

Shrugging off Mr Darling's gloomy forecast, Mr Brown will insist: "In the next 20 years the world economy will double in size and wealth and we have a great opportunity to win new business, new jobs and prosperity."

Mr Brown received a boost yesterday when Jack Straw, the Justice Secretary, predicted he would not face a leadership challenge by him or anyone else. But cabinet ministers have not ruled out trying to force him to stand down if his fightback flops.