The home secretary is doing too little to tackle the "slave labour" conditions suffered by Britain's underground illegal workforce, Mark Oaten has said.

Speaking on Monday, the Liberal Democrat home affairs spokesman said David Blunkett was also guilty of adding to the "hysteria" on asylum and immigration issues.

Oaten said Labour and Conservative politicians had entered into a Faustian pact to gain media headlines at the expense of stoking up fear and concern in local communities.

The home secretary had "helped to create an atmosphere where hatred of asylum seekers is commonplace", he added.

Asylum decisions should be moved from the Home Office so they are "independent from political control".

And Lib Dems would make the "positive case" for immigration, with quarterly quotas set according to economic need, Oaten argued.

He went on to warn that there was "another side to this issue".

"Over the last few years an underground workforce of illegal labour has become established in the UK, working in slave labour-like conditions for a pittance and suffering daily abuse," he said.

The tragedy at Morecambe Bay had highlighted the "awful consequences" of this development.

"And the Home Office has done precious little about it, with only two prosecutions for employing illegal labour in the last year," claimed Oaten.

"They simply don't have the stomach to take on industries which are undercutting the minimum wage and abusing their workers."

Among the policies being backed at the Lib Dem conference are plans to replace the government's reception centres with "small-scale community based" alternatives.

And the party also says it will ensure that "failed asylum seekers are prepared for departure both psychologically and practically, with priority given to voluntary return programmes".