Politics - John Kampfner learns of Tony Blair's nightmare

Terrorism, race and asylum have combined to become the most potent mix in modern politics. But Blair

There is a nightmare in Downing Street and it goes like this. Hundreds of people are killed by bombs on the Underground. A previously unknown Islamist terrorist group linked to al-Qaeda writes to a London-based Arabic newspaper claiming responsibility and demanding that British troops withdraw from Iraq. Within days special forces storm a house in southern England, killing several of the perpetrators and seizing others. It transpires from their interrogation that the men, mainly from North Africa, are illegal immigrants to the UK. A few days later a Sunday newspaper reports that ministers had been warned of the threat posed by this bunch of new arrivals.

Terrorism, race and asylum have combined to become the most potent mix in modern politics. The story above, as you will have surmised, merges the massacre in Madrid with the seizure of terrorist suspects in the Home Counties and the immigration "scandal" that saw off Beverley Hughes. It was offered to me by a senior government official, not as a hypothesis but as a portent. The political and societal damage of such a scenario would, the official added, be devastating.

It was out of this very fear that the Prime Minister felt he needed to be seen to be "taking control" of the immigration and asylum issue. That this concept is an oxymoron does not necessarily attest to Tony Blair's competence but to the world as it is. Ministers - and opposition shadows - know the realities. These include: complete control of our borders is impossible; economic growth depends, in no small part, on cheap foreign labour; Britain's public services would grind to a halt without qualified staff from overseas; the demographics of low birth rates and ageing populations across Europe will increase these needs.

The Conservatives have no interest in admitting to these realities (even though the more rational among them do so privately) for fear of squandering short-term political capital. Labour is frightened of admitting to them for fear of being seen as soft. Blair personally would not dream of admitting to them because that is not what his premiership has been about.

Blair did not talk about the limits of his powers as he summoned David Blunkett, Jack Straw (interrupting his Paris sojourn with the Queen), the new immigration fall-person, Des Browne, other ministers and the security services to Downing Street for his 6 April "summit". To have done so would have removed the need for the meeting in the first place. Blair's aides admit that his attention span is limited. He takes up issues for a week or so, usually when the media decree them a crisis, and lets go again when attention has moved elsewhere. The result, according to ministers, can be paralysis and second-guessing the boss (or the newspaper agenda - often but not always the same thing). But at least "something is being done".

What has particularly upset people at the Home Office in recent weeks is that they had started to believe that their attempts over the past three years to change the nature of the "managed migration" debate were succeeding. They also dared to hope that the public was starting to separate the issues of asylum and immigration, appreciating the need to allow some people in on the basis of their humanitarian need and many more on the basis of our economic need. (Treasury figures, for example, put 0.25 per cent of growth down to foreign labour.) Now ministers fear that even if the case was being listened to, raw emotions have intervened.

The "crisis" is much more about politics than policy. The Immigration and Nationality Directorate was at its most desperate between roughly 1998 and 2002 when, according to ministers, papers were still being stored in garages and warehouses. The number of asylum-seekers was exceeding the number of applications being processed. The number of qualified staff was at a low, and recruitment and training drives had yet to begin. Much of the disorganisation and demoralisation stemmed from cutbacks under John Major.

Blair's problem now is explaining to voters that he cannot solve the "problem". He can exhort the Home Office and the immigration directorate to be more efficient and transparent, and to try to avoid the various individual tales of wrongdoing that have been unearthed in recent weeks.

But he cannot, even if he wanted to, pull up the drawbridge. He can intervene on specifics but not on the general trend. The Sangatte experience was telling. The closing of the camp outside Calais has had only a limited impact on overall numbers, but the government saw it as symbolically important.

The voting cycle will dictate the terms of the political debate. Labour headquarters has for some time been anticipating two outcomes in the June local and European elections - a low Labour turnout and a strong showing for the British National Party. Now there is a third concern - a particularly strong showing by the Conservatives, giving them a foothold again in metropolitan areas from where they had been ejected a decade ago. That would have a snowball effect in confidence and funding in the general election run-up.

Having neutralised the Tories on tax and public spending, Blair now feels exposed on the triple "security" whammy and will do whatever he can to narrow the gap in the parties' positions. And yet he knows the hypocrisy of the right's position. The same people who called for eastern Europeans to be "freed" from the Soviet yoke now want them to be cooped up; the same people who extolled the virtues of globalisation and deregulated markets want them to be partially applied; the same people who call for public spending cuts bemoan the failures of under-resourced public servants.

Many in the government also bemoan the naivety of the left. Hughes's predecessor as immigration minister, Barbara Roche, who was shunted aside by Blair after doing what seemed a pretty good job, complained of liberals suggesting that "economic poverty" was a justifiable reason for granting asylum. She warned that asylum had historically been defined narrowly as persecution, and that any broadening of the definition and any merging with economic migration increased public anger.

Neither left nor right is comfortable framing immigration in a class context but, as with many grievances, this one is based largely in economics. The stereotype is of the middle classes benefiting from their new-found source of cheap plumbers, electricians and babysitters, while the indigenous poor vie with new arrivals for access to services such as health and housing.

The government has suffered from the poor quality of the public debate. It could have, in more confident times, tried to lead the debate in this most sensitive area. It has not done so, and - for all the headline initiatives emanating from No 10 - it will be even more wary of doing so now.