Trade and industry secretary, Patricia Hewitt, is set to make concessions to staff in schools and hospitals whose jobs are transferred to the private sector as part of the government's flagship public/private partnership schemes.

Hewitt will offer proposals allowing staff to keep state benefits and pension rights in a bid by the government to "ease the process of change" and ward-off TUC opposition to PPP.

"Employees need reassurance that their rights will be safeguarded in the vital process of public sector reform and in business restructuring in the private sector," she will say.

The DTI chief will also say that company bosses should be forced to "share the pain" of their workers.

GMB general secretary, John Edmonds, has warned that the row could "crack the foundations" of Labour.

"Tony Blair threatens to crack the foundations of the Labour party. He has certainly tested the loyalty of Labour Party members to destruction," he said.

The GMB publishes a MORI poll showing that the PPP issue has hit the top six of voters concerns and cuts Labour's poll lead by eight per cent. Amid reports of Labour's haemorrhaging membership the poll shows that 24 per cent of Labour voters will switch votes if Labour pushes through plans to give private companies greater role in public services.

Union fears over the state of manufacturing are growing and the TGWU is warning that 250,000 jobs could be lost in the next 18 months.