British interior minister Jacqui Smith plans to resign, a source close to her said on Tuesday, the highest profile casualty of an expenses scandal that has swept through parliament and could yet claim more big names, Reuters reported.
Prime Minister Gordon Brown's Labour party faces a rout in European and local elections on Thursday and Brown is expected to reshuffle his team soon afterwards in an effort to revive his government's fortunes before a parliamentary election.
Britons are furious that many members of parliament (MPs) have milked the allowances system, claiming from taxpayers the cost of everything from duck houses to cleaning a moat at a time when many voters are struggling in a recession.
Smith's reputation suffered in March when a leaked copy of her parliamentary expenses claims showed she had charged taxpayers for her husband's rental of two pornographic movies.
"She spoke to the prime minister at Easter and said she felt it was the right time to go at the next reshuffle," the source told Reuters.
Labour said it had barred four of its MPs from standing as party candidates at the next parliamentary election, due by June 2010, after an investigation into their expenses claims.
Brown is running out of time to win back public support and rebuild trust in the political system, and opinion polls predict a big win for the center-right opposition Conservatives.
There has been speculation that finance minister Alistair Darling, who has faced criticism for his own expenses claims, could be moved from the Treasury to replace Smith.
Foreign minister David Miliband, who was at the forefront of speculation over a leadership challenge last year, may also be switched to another role.
"I want to continue in my job as Foreign Secretary," Miliband told reporters. "I will continue to support the prime minister, the leadership that he is offering is important."
Brown has insisted he will not step down despite dismal opinion poll ratings, saying he has a duty to clean up politics before calling the next election.
TURBULENCE AT TOP
Analysts said the turbulence at the top of government was having little impact on financial markets because a reshuffle was unlikely to greatly alter the economic outlook or policy.
"I don't think it really matters who is Chancellor (of the Exchequer) of the country," said David Morrison, a strategist at GFT Global Markets. "The situation that we are in is not going to be changed by a change of Chancellor."
But a Brown ally, schools minister Ed Balls, is tipped as a possible replacement for Darling, and economic policy could become more left-leaning as Balls may want to impress the grassroots of the party he wants to lead.
Some commentators say a poor Labour showing in the elections this week could lead to a new effort to topple Brown. Health Secretary Alan Johnson, more media-savvy and union-friendly than Brown, is seen as a potential replacement.
"If we did have a new leader, I would expect an election in the autumn because the idea of a second unelected prime minister is not going to cut it. But I don't think many in the Labour Party would want that, so I don't think it will happen," said David Lea, western Europe analyst at Control Risks.
All the main parties have been hit by a series of disclosures about their expenses published in the Daily Telegraph over more than three weeks, and several MPs have said they will not stand at the next election as a result.
Labour, in power since 1997, appears likely to suffer most in the polls having presided over a now-discredited system.
An Ipsos MORI poll published in the Sun newspaper put Labour support at just 18 percent, level with Britain's third party, the Liberal Democrats. It showed the gulf between Labour and the Conservatives widening to 22 points.
Smaller parties, such as the UK Independence Party, the far-right British National Party and the Green Party, are expected to benefit in this week's elections.