Cameron seeks to push one million workers out of the public sector

Staff in the NHS and other services are being shifted into mutual-style programmes based on the John Lewis model

One million state workers are to be transferred out of hospitals, colleges and job centres as part of David Cameron's "aggressive aspiration" to create John Lewis-mutual style public services.

With little fanfare, services across the country are being quietly taken over by their own staff – state funded but run independently. The Prime Minister claims the number of services that adopt the scheme will be a key test of his Big Society vision.

Mr Cameron told MPs: "Why are we doing all this? In the end, it is to try to make sure that we have better schools, that we have hospitals treating patients better, that we have better-run care homes. This is all just the mechanics under the car bonnet to make the car work better. But to me, mutuals are one way to get that."

At least 45,000 health workers have already left the public sector under the programme, including 10,000 nurses. A new right to request, where staff or a voluntary organisation can ask to run a service, has been created.

To supporters, mutuals put staff in the driving seat, releasing them from the deadening grip of the Whitehall mandarin. They are free to focus their efforts on helping the public, not politicians. As a result, staff are more motivated and productive; costs and bureaucracy are cut and sickness can fall by as much as half.

To critics, the idea heralds the piecemeal break-up of nationwide services, a drift towards privatisation by the back door. "You go to John Lewis to buy a sofa, not to have chemotherapy," the Unite union said.

Last week, it was announced that Circle, a social enterprise co-owned by 49.9 per cent of staff, was to become the first private firm to run an NHS hospital. From February next year, it will run Hinchingbrooke Hospital in Cambridgeshire as part of a £1bn, 10-year deal. Labour seized on the decision as proof of the Government's "true vision for the future of our NHS, with the wholesale transfer of the management of entire hospitals to the private sector".

However, Mr Cameron denied that the mutualisation programme, which will fundamentally – and permanently – change the way public services are viewed and run in Britain, was a "drive to say that privatisation is the right answer in every case".

The Government is offering to "hold the hands" of state workers who come up against "institutional resistance" from large public bodies who fear the break-up of their fiefdom. The businesses, some advised by senior John Lewis staff, are modelled on the retailer's "partnership" structure.

Lesley Ballantyne, John Lewis's director of operational development, said: "When staff have a meaningful stake in the enterprises in which they work, and participate in a culture of genuine participation, the results can be incredibly powerful – in terms of productivity, motivation, staff retention, reduced sickness rates and staff satisfaction levels." However, she stresses that it "won't suit everyone".

Julian Le Grand, Tony Blair's radical policy adviser who advocated introducing the market to the public sector, is heading the Government's mutuals task force. Services already being converted include homelessness support in Leicester, children's services in Hammersmith and Fulham, and a trust to run an agricultural college in Cumbria.

The PCS union accuses the Government of using the language of mutualism and co-operation to soften opposition to what amounts to privatisation. And Unison said the Hinchingbrooke decision was "an accident waiting to happen" which was "putting patients at serious risk".

The real fear is that when contracts come up for tender again, the mutuals will lose out to private firms. Recently, Central Surrey Health, a social enterprise given a Big Society Award by David Cameron, lost out on a £500m contract to Assure Medical, a private company, amid claims that a £10m bond was demanded to guarantee the five-year deal.