Blair warns Labour against moving left to counter Lib Dems

The Prime Minister will tell next week's Labour conference in Brighton that the party will risk losing power if it vacates the centre ground of British politics. Several Labour figures, including some allies of the Chancellor Gordon Brown, want Labour to shift to the left to win back voters who opposed the Iraq war or Mr Blair's domestic policies.

In a report sent to cabinet ministers, Downing Street suggests Labour should direct its main fire at the Tories rather than the Liberal Democrats at the next election. It warns that expected boundary changes will reduce Labour's majority from 65 to 50, making the election closer.

The report says: "In the 25 most marginal Labour seats, the Conservatives are second in 19, the Lib Dems in five. Of the top 25 target seats [for Labour] to gain, the Conservatives hold 19, the Lib Dems five. Therefore swings to the Conservatives are much more dangerous than swings to the Lib Dems while swings from the Conservatives are much more productive than swings from the Lib Dems."

It adds that Labour would lose its current majority on a swing of 2.5 per cent to the Liberal Democrats but only 1.4 per cent to the Tories.

At a 40-minute political session of the Cabinet to discuss next week's conference, Mr Blair promised to make the challenge of the new global economy the central theme under the banner of "Securing Britain's Future". He said his recent visits to China and India had brought home to him the need to equip the British people to deal with the rapidly changing world economy.

He also vowed to press ahead with further public service reforms before he stands down.

He was backed by Mr Brown, who said that the Government had to be able to show that, in its third term in office, it was still capable of "renewal, reform and modernisation".

Mr Blair is offering to consult his party's rank and file more to answer criticism that he steamrollered his party over controversial policies such as Iraq and top-up fees.The plans are outlined in the foreword to a policy paper on modernising the party for the 21st century.