Harriet Harman has given her bleakest assessment of the Government’s plight, admitting that there is dissatisfaction with Labour as the party prepares for a week-long onslaught from an emboldened union movement.

In an interview with The Times, the party’s deputy leader offered little comfort for Gordon Brown, backing the Chancellor’s gloomy assessment of the international economy last week and claiming that hard times were turning people against Labour.

“When people feel that their lives are more of a struggle than they used to be then that expresses itself in dissatisfaction with the Government,” she said.

Union leaders, who are gathering in Brighton this weekend for their annual Congress, warned Mr Brown that he needed to act now to help low-paid workers. Tony Woodley, the general secreatary of Unite, the largest union, told The Times: “If this Prime Minister doesn’t listen and act more than he is doing, then make no mistake about it, it will be the economy that will be his downfall.”

He said that the dire state of the economy called for radical policies and for Labour to throw out neo-liberal economics. Mr Brown had to “do a damn sight more to regain the confidence of the country”, he added. He also repeated union demands for a reversal of many of Margaret Thatcher’s trade union reforms.

The latest economic data showed little prospect of a recovery on the horizon, with the FTSE falling 7 per cent this week, its worst for six years. Unemployment in the United States rose to a five-year high of 6.1 per cent in August as employers slashed 84,000 jobs, although the price of oil slid again below $105 (£60) a barrel.

Mr Brown also faces a growing backlash from his party over his failure to secure a deal with energy companies for direct payments of £50-100 for lower-income households to reduce fuel bills this winter.

MPs will now watch the scale of next week’s energy package to see if it goes over the £1 billion level, regarded by some as a minimum.

The energy proposals are now likely to centre on extra financial help to pay for home efficiency measures targeted at low-income households. Negotiations over the scale of the contribution from energy companies are still going on. Many MPs are withholding judgment until the final package is published, although some were upset that direct payments had been ruled out, saying that that could prove “very serious indeed”.

Fabian Hamilton, Labour MP for Leeds North East, said: “They could lose support from those that look to the Government for the help they need right now. People like me, strong supporters of Gordon Brown and the Government, our support might fade away considerably.”

Geoffrey Robinson, the millionaire Labour MP and one of Mr Brown’s oldest friends, suggested the Government could do more to force energy companies to “pull their finger out”.

Ministers deny that they caved in to the energy companies, with Hilary Benn, the Environment Secretary, saying that one-off payments could not stop bills rising again next year.

The unions will also renew their demands for secondary strike action and even their calls for nationalising some utility companies.

Embarrassingly for Mr Brown, the debate over a windfall tax on energy companies will be debated on the day he attends.

Times Recommends

• He stole my son, now I’m alone in hell
• Back on the air, but don’t mention Mugabe
• Ten kitchen gadget gift ideas