The Tory leader has been on the offensive over immigration
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Tony Blair's government has allowed the special interests of a "politically correct" minority to subvert British values, Michael Howard has said.
During a speech on immigration and asylum, Mr Howard said those who dared to criticise groups that bent the rules were "intimidated into silence".
But no one stood up for British values which were "being trashed", he added.
Mr Blair said Mr Howard was playing on people's fears. The Lib Dems said he had a problem with his own Britishness.
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Common sense has been turned on its head. The victims have become the aggressors and the aggressors have become the victims
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Mr Howard said he had been "attacked ferociously" by Labour ministers when he said a "small minority of travellers" were abusing planning rules to set up illegal encampments.
These reactions went to "the very heart of what's gone wrong in our country", he said.
"Some people call it political correctness. Others call it moral relativism. I call it madness," he told party supporters in Watford.
"Common sense has been stood on its head. The victims have become the aggressors and the aggressors have become the victims."
On immigration, Mr Howard said a Tory government would "stop people abusing Britain's generosity".
There were "literally millions of people from poorer countries" who would like to settle in Britain - but the country could not take them all.
'Single issue'
But he was also keen to stress the contribution many valuable immigrants had made to Britain over the years.
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[Michael Howard] believes he is particularly equipped to speak on immigration and can slap aside allegations of racism and xenophobia
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Mr Blair accused the Tories of fighting a single issue campaign on immigration and said everybody knew what Michael Howard was doing at this election.
"I have never accused him of racism. What I have accused him of is opportunism because he is focusing on this issue and saying the government has done nothing."
Mr Howard was "playing on people's fears without having any sensible policy to deal with the issue", because the Tory economic plan had fallen apart.
The Joint Council for the Welfare of Immigrants said political parties were focused on a "narrow numbers game" of how many people the UK could keep out, detain and deport.
"This is an incredibly short-sighted and repressive approach. It fuels anti-migrant feeling while failing to make a vital connection between immigration and other policies."
'Yob culture'
Environment secretary Margaret Beckett accused Mr Howard of jumping on any passing bandwagon, adding that the asylum system was in better shape than the "shambles" he left in 1997.
"So it's nothing on the economy, lots on gypsies. Nothing on the impact of their cuts in public services, lots on isolated cases where things go wrong."
Liberal Democrat leader Charles Kennedy said: "I'd like to hear from Michael Howard what is it he's uncomfortable about, as someone who's instinctively hostile about Europe, who apparently is not very satisfied with the domestic mix of our make-up of this society, and was blatantly hostile to devolution within the United Kingdom.
"It seems to me he's the one who's got the problem about being British."
Later Mr Howard was tackled on BBC Radio 4's Election Call on the issue by a fellow son of a Jewish migrant who said every time the Tory leader spoke about immigration, he got a hard time.
Cheap trick?
"He's making life impossible for us because he has pandered to the xenophobic views of the readers of the Daily Mail," the contributor said.
Mr Howard countered that unless immigration was brought "under control" community relations would get worse.
But the caller accused the Tory leader of peddling a "cheap trick" and "patronising" him.
In his speech, Mr Howard also attacked "yob culture" - the effects of which were being felt across the country.
But tackling youth crime was not just a question of policing, it was also about parents and their responsibilities, he said.
Longbridge talks
A day after launching their manifesto meanwhile, the Lib Dems are trying to show there is a "green thread" running through all their policies.
At a morning news conference, leader Charles Kennedy highlighted plans for targets of recycling 60% of household waste by 2012 and using renewable sources for 20% of electricity by 2020.
Friday also saw the UK Independence Party launch its manifesto on a slogan of "we want our country back". It wants to withdraw from the EU but insists it is not a single issue party.
Gordon Brown and Tony Blair meanwhile began the day by focusing on Labour's policies for families but both left the campaign trail after news broke of MG Rover's imminent collapse.
The chancellor and the premier headed to Longbridge for talks where they announced a £150m support package for workers who have lost their jobs.