Reid's departure may open way for Straw

Jack Straw could make a surprise return to the Home Office after John Reid, the Home Secretary, announced he will leave the Cabinet when Gordon Brown takes over from Tony Blair at the end of June.

Mr Reid, a prominent Blairite, confirmed that he would not challenge Mr Brown for the Labour leadership and gave him his full backing as the next Prime Minister. But his decision to quit shocked Westminster, provoking speculation that he did not want to serve under Mr Brown and that some Blairites will distance themselves from his government.

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The Chancellor had intended to keep Mr Reid as Home Secretary but his departure eases Mr Brown's "Scottish problem" - the number of fellow Scots he can include in his first Cabinet following Labour's defeat in last week's elections to the Scottish Parliament.

Mr Straw, who was Home Secretary from 1997-2001, is now the front-runner to return to the Home Office this summer. Mr Brown believes that Mr Straw, a former Foreign Secretary, would bring a wealth of experience to the domestic and international fight against terrorism.

Mr Reid's decision clears the way for Alistair Darling, the Trade and Industry Secretary and another Scot, to succeed Mr Brown as Chancellor. David Miliband, the Environment Secretary, is being considered by Mr Brown for promotion to a senior job - possibly Foreign or Home Secretary. Hilary Benn, the International Development Secretary, is another possible candidate for Foreign Secretary.

With Margaret Beckett expected to leave the Foreign Office for another Cabinet post, Mr Reid's departure means the top four posts in the Government are likely to change when Mr Blair departs.

To help him offer a "fresh start" after the Blair era, Mr Brown will bring in several younger ministers including Brownites Ed Balls, Yvette Cooper and David Miliband and Blairites Andy Burnham and James Purnell. Those tipped to win promotion to posts outside the Cabinet include ministers Liam Byrne, Beverley Hughes, Jim Murphy and John Denham, who resigned from the Government over the Iraq war.

Mr Reid, who will be 60 tomorrow, said he was leaving the Cabinet to make room for "new people" and wanted to "recharge my batteries" after holding nine different ministerial posts in the past 10 years.

Mr Reid said Mr Brown was "the pre-eminent politician of Labour" and predicted he would stick to a New Labour agenda while bringing in his own ideas. The two men have never been close, but appeared to have patched up their differences recently in talks on how to tackle terrorism.

Cabinet colleagues said Mr Reid was "knackered". But some ultra-Blairites claimed his move reflected doubts about Mr Brown. "He doesn't want to work under Gordon, have a feud and then be sacked as a scapegoat," said one Blair ally.

In a letter to Mr Blair, Mr Reid said: "Whatever the pros and cons of a [leadership] contest, I do not believe that there is eagerness in the party for what might be a divisive exercise ..."

The Prime Minister said Mr Reid would be "a great loss to both country and party ..."

John Hutton, the Blairite Work and Pensions Secretary, who has previously called for a leadership contest, backed Mr Brown yesterday. "Gordon is going to be the next Prime Minister," he told GMTV's Sunday programme. "I think it's the job of everyone who wants Labour to go on being successful as New Labour to get behind Gordon ..."

The only remaining challenge facing Mr Brown is from left-wingers John McDonnell and Michael Meacher, who have agreed not to stand against each other. One of them needs the backing of 45 Labour MPs to force a contest.

Extract from resignation letter

"I do not intend to put my name forward as a candidate in the leadership elections. Whatever the pros and cons of a contest, I do not believe that there is eagerness in the party for what might be a divisive exercise at this time. Moreover, I believe that it is in all our interests that the incoming Prime Minister should have the widest opportunity to make a fresh start, with the maximum flexibility in introducing his own agenda, ideas, and ministers. For that he needs space. This has persuaded me that I should stand down from the Cabinet at the time you stand down as Prime Minister."