We will help public-sector reform – but at a price, union leaders tell Blair

Union leaders will demand inflation-busting pay rises and improvements in working conditions today in return for carrying through the Government's promised reforms of Britain's public services.

They will tell Tony Blair that he cannot expect to impose reforms, including increasing the role for private contractors, if he does not address concerns on low wages among public-sector workers.

Mr Blair will attempt to reassure senior unionists at a Downing Street dinner tonight as the Government softens its line amid growing concern that Labour's plans for modernisation could threaten jobs and the ethos of public service.

Downing Street was emphasising that the meeting, which has echoes of the beer and sandwiches consumed by union barons at No 10 in the 1970s, reflected its desire to see partnership between the Government and unions over reform of schools, hospitals and other services.

But a senior source at the GMB union said: "Downing Street is dangerously out of touch. If they seriously think trade union members are in support of these proposals then they are in for a rude awakening. If anything, during the election campaign, trade union leaders were having to hold back their members on this issue rather than spur them on." He called for "pay increases in real terms", insisting: "The Government are not going to get anything without the goodwill of the people who provide the services."

Mr Blair has been stung by threats from Unison to review its funding of the Labour Party, amid fears among some backbench MPs that Downing Street has lost sensitivity to union opinion.

Other union leaders are most concerned by the lack of detail from ministers on their proposals for reform and want guarantees that their members will not suffer in being transferred to commercial employers. Mr Blair will meet union leaders alone for the private dinner, which his official spokesman insisted would be an opportunity for dialogue.

He said: "He is not going to sit there and talk for the whole of the dinner. He wants to have a dialogue with them. He is interested to hear what they have to say."

John Monks, the TUC general secretary, will lead the delegation, emphasising the opportunity for partnership. Also at the meeting will be Bill Morris, general secretary of the Transport and General Workers' Union, John Edmonds of the GMB, Ken Jackson of the AEEU, Dave Prentis, new general secretary of Unison, and Roger Lyons, leader of the white-collar MSF union.

Alan Milburn, the Secretary of State for Health, continued the reassuring theme yesterday, telling MPs that NHS principles, and indeed the NHS, were not for sale. But he came under fire from Labour backbenchers as well as from Opposition MPs over suggestions that the Government was planning widespread privatisation.

Derek Foster, Labour MP for Bishop Auckland, asked: "Will you ensure that the NHS is saved from an unnecessary and counter-productive battle and that we get on with the job that you are so splendidly doing of delivering?"

John Hutton, a Health minister, replied: "The Government has no plans to privatise the National Health Service."

Mr Milburn insisted there would be clear limits on private-sector involvement in the health service,: "Reform in the NHS has to be led by people within the NHS."