John Lewis-style mutuals, where staff call the shots instead of ministers, will take over the running of vast swathes of the public sector under radical plans to be unveiled this week.
The long-awaited shake-up of the state will be launched by David Cameron tomorrow, with a promise to hand "choice and control" to communities across the country. He will throw open every part of the public sector to the "best possible provider", in a move that is likely to attract accusations of privatisation by the back door.
The Open Public Service White Paper, originally due last autumn, will be presented as the sector's biggest overhaul for 50 years, with private firms, voluntary groups and charities cleared to take over schools, healthcare and council services.
A flashpoint of the Government's NHS reforms was the emphasis on competition. In an attempt to avoid a repeat of the row, ministers will put the emphasis on "mutuals", where staff control the planning and spending decisions for local services. Francis Maude, the Cabinet Office minister, hailed the "transformational" impact mutuals could have on service quality and staff morale.
He pointed to an intermediate care unit in Swindon, launched as a pilot last summer and advised by the John Lewis Partnership retail chain. It brought together around 900 nurses, physiotherapists, doctors and other staff previously employed by the primary care trust and local council.
"It's a mutual where there's no financial incentive. They will own it, but with no profit share or anything, no financial upside, they will have to take out 30 per cent of their cost over the next four years and they are really excited about it," Mr Maude told The Independent on Sunday.
Chris Nicholson, chief executive of the Centre Forum think-tank, warned that the coalition's claims to be "ownership-blind" when it comes to who runs public services means ministers risk being "influenced too much by politics, fad and fashion".
The most contentious part of the white paper sets out why the state cannot have a monopoly on running services. In February, Mr Cameron declared an ambition for public services to be open to outside providers. This angered trade unions and Lib Dems fearing a Tory ideological attack on the state. The plans have since been scaled back.
Last night, Whitehall sources said: "This is not about saying private is best. People should have the right to choose the best services for them, delivered in the best way possible." At an event in London tomorrow, Mr Cameron will stress that high standards, not just the lowest bid, will decide who runs services. He will point to an expansion in academies and free schools as forerunners. The Work Programme, where organisations are only paid for every unemployed person they help into a job, has seen a high take-up by charities.
Tessa Jowell, Labour's shadow Cabinet Office minister, said the plans had to make services more accountable to users and ensure that spending and members of the public are protected and that community and family life is strengthened.