Brown makes up with Prime Minister to unite against resurgent Tories

Gordon Brown sought yesterday to end a long-running dispute between him and Tony Blair by endorsing the Prime Minister's call for radical reform of public services to give people more choice.

The move forms part of a concerted attempt by the two most powerful men in the Government to heal the rift which erupted three weeks ago when Mr Brown admitted Mr Blair had blocked his request for a place on Labour's national executive committee.

The Chancellor, who has been worried that extending choice helps the better off more than the poor, has co-written with Mr Blair a Labour Party consultative document to be published today that backs the Prime Minister's desire to see state-run services become more consumer-oriented.

It discloses that in the Treasury's wholesale review of government spending, to be published next summer, "our emphasis will be ensuring that public funds are tailor-made to meet the needs of the individual - away from the one-size fits all approaches of the past."

The document says the review "will focus on those areas where - with capacity sufficiently expanded to meet diversity of choices people have - the citizen will enjoy far greater control and effective choice to ensure the public services meet their needs".

Allies of the Prime Minister and Chancellor say that working together on the document has "rejuvenated the axis" between them. The Tory revival under Michael Howard has also persuaded them to work hard to settle their differences.

The Chancellor has been wary of Mr Blair's plans to inject market forces into state services. He watered down proposals for foundation hospitals, but failed to halt plans to allow universities to charge top-up fees of up to £3,000 a year. But he has been furious to be portrayed as an "Old Labour" opponent of reform.

When he shares a platform with Mr Blair at a Labour conference in Newport today, Mr Brown will say: "Just as we have made economic reform a priority for Europe, Labour must embrace an ever more radical agenda of economic reform in Britain. The New Labour way is flexibility with fairness, equipping people to master change."

Proposals in the document include increasing the pressure on the hard-core unemployed to find work or face benefit sanctions; a shake-up of Jobcentres under which managers with poor records of getting people into work would be fired; reform of housing benefit; expanding the private rented sector; allowing more housebuilding and devolving power from Whitehall to front-line staff.

The report says: "The modern route ... to full employment for all regions and nations is to combine labour market dynamism and flexibility with fairness."

Mr Brown will tell the conference: "Our party's modernisation will not be complete until it has become the party of the self-employed, managers and employers and business as well as employees."