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* Immigration is major issue before 2015 election
* Labour planned strong criticism of Tesco and Next
* Dilutes criticism after firms deny allegations
* Climb-down is embarrassing for Labour
By Andrew Osborn and Peter Griffiths
LONDON, Aug 12 (Reuters) - Britain's Labour party toned downits criticism of retailers Tesco, and Next onMonday, a day after it said it planned to accuse them offavouring cheaper workers from Eastern Europe over Britishemployees.
Chris Bryant, a senior lawmaker and the opposition party'sspokesman on immigration, changed the wording of a speech hedelivered on Monday morning to water down some criticism andretract some allegations altogether.
The climb-down is embarrassing for Labour which is trying toconvince voters it is serious about controlling immigrationahead of a national election in 2015, conceding it made"mistakes" on immigration when in power from 1997 to 2010.
Labour is ahead of the ruling Conservatives by about sevenpercent in opinion polls, but some polls estimate its lead ismuch slimmer and its support has dropped in the last month.
Polls show immigration is one of the subjects that worriesBritish voters the most and that many expect political partiesto show they have a plan to tackle what they regard as excessivelevels of immigration.
On Sunday, advance extracts of Bryant's speech showed heplanned to accuse Tesco, Britain's biggest retailer, of makingit difficult for British workers to relocate after closing downa distribution centre by telling them their pay would be cut.
"The result? A large percentage of the staff at the newcentre are from (the) Eastern bloc," he planned to say.
But on Monday, he dropped the reference to pay being cut andavoided directly referring to Eastern Europe, saying simply thatworkers said they would have lost out in any move, showing how"sensitive" the issue of low-skilled migrant workers had become.
He also diluted planned criticism of Next, Britain'ssecond-biggest clothing retailer, dropping an allegation thattheir use of Polish workers meant it was able to skirt Britishlabour laws that would make hiring comparable local workers moreexpensive.
DENIALS
Both Tesco, which employs more than 310,000 people in 3,146stores across Britain and Northern Ireland, and Next had saidaccusations contained in previews of the speech were untrue andcontained factual errors.
"The statements in relation to Tesco are untrue," Tesco saidon Twitter. "We work incredibly hard to recruit from the localarea and we have just recruited 350 local people to work in ourDagenham site."
Retailer Next said it did hire Polish nationals to work inBritain at busy times, but said it did so because it could notfind enough Britons to fill vacancies and that it was not doinganything unethical or illegal.
Bryant, whose speech spoke of "unscrupulous employers", saidhe never intended to suggest Tesco and Next were such, butstressed it was wrong that companies recruit so many overseasworkers in areas of high unemployment.
"I am not backtracking from my basic point," Bryant toldreporters after his speech in London. "How can it be that whenyou have 23.8 percent youth unemployment in an area that it isnecessary to bring in 300-500 workers from elsewhere?"
Bryant also tried to calm the row by praising the twocompanies and saying he had hoped to inform a wider debate onimmigration and employment.
The argument is awkward for Labour as it tries to tackleaccusations voters are unclear what it stands for after itdrifted from its Socialist roots when it was last in power from1997-2010, and are unconvinced by leader Ed Miliband.
One senior Labour figure, health spokesman Andy Burnham,said in a newspaper interview at the weekend that thecentre-left party must "shout louder and speak in a way thatcaptures how people are feeling".
Labour suffered from a perception at the last election in2010 that it had turned its back on working-class supporters andplayed down the impact immigration had had on their communities.
In one awkward incident, then Labour Prime Minister GordonBrown was heard describing a supporter as a "bigoted woman" whenshe asked him about immigration on the campaign trail.
The issue is also a challenge for the Conservatives and Prime Minister David Cameron is trying to stop an exodus ofvoters to the anti-immigration UK Independence Party before the2015 vote.
Cameron was criticised by his coalition partners, theLiberal Democrats, last month after the government sent vans onto the streets of London with billboards telling illegalimmigrants to "go home or face arrest".
