Ministers are bracing themselves for a rise in violent crime and burglaries and a shift to far-right extremism as the effects of the economic downturn take their toll, a leaked Home Office report to the Prime Minister says.

In a series of warnings, the Home Secretary, Jacqui Smith, says that Britain also faces a “significant increase” in alcohol and tobacco smuggling, hostility towards migrants and even a potential rise in the number of people joining terrorist groups.

Revenue raised from issuing new visas is also set to fall as people stop travelling, passport fees will drop and police funding will come under extreme pressure, according to a copy of the report, Responding to Economic Challenges, seen by The Times.

Most Britons had only considered the effects on the economic downturn on their food, fuel and housing bills but Ms Smith’s revelations show that the credit crisis is likely to affect them in other, more sinister ways.

Based on models from the last recession in 1991-92, Ms Smith tells Gordon Brown that violent crime is set to grow at a rate of 19 per cent while theft and burglaries could rise by up to 7 per cent this year and 2 per cent in 2009.

“Our modelling indicates that an economic downturn would place a significant upward pressure on acquisitive crime and therefore on overall crime figures,” Ms Smith says.

The report reveals that the Home Office has allocated £300 million for security for the 2012 Olympics and that there could also be a rise in people turning to extremist groups and racism because of “a real or perceived sense of disadvantage held by individuals”. The report added: “Grievances based on experiencing racism is one of the factors that can lead to people becoming terrorists”.

The report highlights Pakistani and Bangladeshi communities as those most vulnerable to such effects because of low employment rates and having the highest percentage of children living in households with income 60 per cent below the average.

A tightening in the economy is also expected to bring a significant rise in fuel, alcohol and tobacco smuggling and illegal-working migrant numbers could swell as job opportunities fall.

A Home Office spokesman said that the department did not comment normally on leaked documents but the report was a draft advice on which the Home Secretary had not yet signed off. It had not been sent to No 10.

“It is, however, appropriate that the Home Office considers the effects the economic climate may have on crime and other policy areas. We are confident that we have the right systems in place to respond flexibly to changing economic needs, and are well positioned to face future challenges.”

Dominic Grieve, the Shadow Home Secretary, said the Home Office was “patently not equipped to cope”.

“It is deeply disturbing that a department as shambolic as the Home Office already is facing such problems as a result of the economic downturn.

“Now we see that the consequences of Gordon Brown’s complete mismanagement of the economy will not just hit hard-working families in the pocket but will also threaten their security and safety.”

Damian Green, the Shadow Immigration Minister, said that ministers needed to come clean on which operations at the Border Agency were under threat and suggested scrapping the identity card scheme immediately.

Times Recommends

• Fern Britton: 'I still can't see that I was wrong'
• Extreme cooking
• Easy French: Tarte Tatin