Shabana Mahmood has warned a growing number in Britain are "on a path from patriotism towards ethno nationalism".
The Home Secretary pledged to get tough on migration and said voters will be seduced by the "false promises" of Nigel Farage if Labour fails to get a grip. She announced a string of measures making it harder to be granted indefinite leave to remain in the UK - saying contribution to society will be a condition to stay.
And she pledged to do "whatever it takes" to secure the UK's borders and tackle small boat crossings. Ms Mahmood told the Labour Party Conference in Liverpool that 150,000 people attending a Tommy Robinson-organised march in London highlighted deep divisions.
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She said some were "heirs to the skinheads and p***-bashers of old", but added: "To dismiss what happened that day would be to ignore something bigger, something broader, that is happening across this country."
She said if Britain's borders are not secured, division will get worse. Ms Mahmood stated: "Patriotism, a force for good, is turning into something smaller.
"Something more like ethno-nationalism, which struggles to accept that someone who looks like me, and has a faith like mine, can truly be English or British. There are some who we will never be able to persuade.
"But there are others, a growing number, who are on a path from patriotism towards ethno-nationalism, and this can be stopped. But to do so, we have to understand why so many people feel this country is not working for them."
She said the scale of immigration has "frayed trust and eroded public confidence", accusing the Tories of a "rank betrayal". She said contribution "is a condition" of being welcomed to the UK.
The Home Secretary announced the time someone must have lived in the country before claiming indefinite leave to remain will go up from five years to 10.
She said there will be a string of new tests - including being in work, making national insurance contributions, not claiming benefits, learning English, having no criminal record and giving back to communities. The latter could include volunteering, Ms Mahmood stated.
"Without meeting these conditions, I do not believe your ability to stay in this country should be automatic," she said. The Labour frontbencher said some might earn an earlier settlement, while others could be made to wait longer or even refused.
Green MP Carla Denyer has slammed the Home Secretary's plans to restrict Indefinite Leave to Remain as 'out of touch', saying instead the government should put forwards 'common sense' proposals like allowing asylum seekers to work.
Ms Denyer said: "This afternoon's speech shows that Shabana Mahmood is out of touch with reality on migration. Migration is good for this country: for the economy and for important work like in our NHS, but just as importantly, migrants become our friends and neighbours, and enrich UK culture.
"The problem is that our current migration system is only focused on reducing numbers rather than actually making it work for our communities. A major step to fixing this would be removing responsibility for migration from the failing Home Office which treats migration as a crime.
"But in the meantime there's plenty we can do to make the system fairer - like allowing asylum seekers to work so that they can contribute to the economy and support themselves. We need common sense solutions like this, not Reform-lite gimmicks from Mahmood."
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