Sir Keir Starmer will risk handing more votes to Reform by putting his Brexit reset at the centre of his fightback.
The Prime Minister is expected to deliver a major speech in the wake of dismal local election results in which he will claim that closer links with the European Union are needed to tackle the cost of living.
He will say that the turmoil caused by the Iran conflict shows that Britain cannot afford to ignore the benefits of improving relations with Brussels.
'Building a closer relationship with the EU is crucial not just for economic growth, but also cutting the cost of living. We cannot afford to ignore this,' a No 10 source said.
His Government's next programme of legislation, to be unveiled in the King's Speech on Wednesday, will also aim to improve British firms' access to the single market.
Under a new EU bill, areas of the economy – likely to include chemicals, cars and pharmaceuticals – will be able to align with EU regulations more easily.
In addition, Sir Keir is planning another summit with European Commission President Ursula von der Leyen for the early summer following last year's deal on fishing rights.
He hopes to secure an agreement on a youth mobility scheme that will allow thousands of under-30s from across the continent to live and work here - despite Brussels' demands to let Europeans enjoy lower university tuition fees in Britain.
Sir Keir Starmer and his wife Lady Starmer leaving a polling station after voting on Thursday
Britain is expected to have to pay £1billion a year to Brussels coffers in order to secure improved access to the single market.
Some senior Labour figures such as Sir Sadiq Khan want Sir Keir to go even further and commit to Labour campaigning to rejoin the European Union at the next election.
However the PM is expected to maintain Labour's manifesto pledges not to rejoin the single market or customs union, or return to freedom of movement.
'The red lines are absolute,' a source told the Daily Mail.
Even pro-EU MPs acknowledge that if Britain had to ditch the pound and join the euro, 'Nigel Farage would run a campaign against that and he would win', the Politico news site reported.
Former Cabinet minister Ed Balls, husband of Foreign Secretary Yvette Cooper, also warned the PM he must avoid creating the impression that he is reversing Brexit.
He told his Political Currency podcast: 'If people see this as being a backward step and a backward step which includes a backward step into free movement, I just think that ends up being a politically losing argument for Keir Starmer and for Labour, as was the case back in 2019. I don't think a repeat of the 2019 election is in anybody's interest.'
Last night a Reform source told this newspaper: 'We're confident that this would drain what's left of the Labour vote in the Red Wall to us.
'And if they were mad enough to try and renegotiate a deal to rejoin the EU we're confident we would win that again, not least because the terms will almost certainly be worse than last time.'
Reform pick for Chancellor, Robert Jenrick, said: 'Keir Starmer is out of ideas and out of time. He's given up on serving the country and is now fighting a daily battle for his political survival.
'The country is crying out for the Prime Minister to secure our borders, clamp down on crime and ease the cost of living, but Starmer is more interested in cooking up rows over Brexit to try and stop his MPs getting rid of him. If that's all he's got left to offer, he might as well pack up and call a general election.'
It comes after Poland's foreign minister warned that if the UK applied to rejoin the EU, it would not get the same 'à la carte membership' it previously enjoyed that included opt-outs from the single currency and the passport-free Schengen zone.
'Every item on the menu has a price in terms of sovereignty, in terms of honouring rules that you didn't make yourself,' Radosław Sikorski admitted.