Blair takes on his party

Defeat over PFI; Iraq statement dropped; But PM says no concessions

Tony Blair will defy the Labour Party conference today by declaring that his Government will go further and faster in its controversial reforms of public services.

In his keynote speech to the party's annual conference in Blackpool, the Prime Minister will shrug off the embarrassing defeat he suffered yesterday, when delegates voted by 2-1 for an independent value-for-money review of the Government's use of private finance in public services.

The setback was only Mr Blair's second defeat at the annual conference since becoming Labour leader in 1994 and highlighted the gulf between him and his party. Paul Boateng, the Chief Treasury Secretary, was slow-handclapped, jeered and heckled by delegates when he defended the Private Finance Initiative (PFI). But the Government made clear immediately that it would ignore yesterday's vote.

The strains between Mr Blair and his party were also evident over Iraq. The Labour leadership had to make a tactical retreat by withdrawing its statement backing the Government's stance, amid fears that the conference would vote it down.

Facing his most difficult Labour conference speech today, Mr Blair will make no concessions to the trade unions and activists who oppose his domestic reforms. He will say: "We have not been bold enough. It is the time to increase the pace of reform, not mark time or slow down."

Mr Blair will demand more choice for pupils in what he will call the "post-comprehensive era" of education. While he believes the comprehensive ideal was right, he thinks it has failed to provide a good education for large numbers of children. He wants more specialist schools and teaching to be more tailored to the individual needs and talents of pupils.

The Prime Minister's drive for a more consumer-oriented approach to public services could mean an even bigger role for the private sector in health. Today he will defend the PFI and endorse plans to give high-performing hospitals freedom from Whitehall, on which Alan Milburn, the Secretary of State for Health, and the Chancellor Gordon Brown are at loggerheads.

Mr Blair will say he has learnt that the right decisions are usually the toughest ones and that the country must face up to the need for "real and lasting change". He will say the reforms of the Liberal government of 1906 and the post-war Labour administration, which created the welfare state, need to be "recast" for a new age in which individuals have greater expectations.

Mr Blair will devote most of his speech to the domestic agenda after criticism from party activists that he has neglected it by focusing on the Iraq crisis.

He will try to reassure his party that he is committed to a United Nations solution but will warn that the authority of the UN could be destroyed if it allows Saddam Hussein to flout the will of the international community. He will argue that the only way to deal with a dictator such as President Saddam is to show a readiness to act, but he will stress that military action would be used only as a last resort.

There was relief among the Labour leadership that the conference rejected a hardline motion opposing a war in Iraq by 60 per cent to 40 per cent. Instead, it approved a motion saying that military action could be taken "in the last resort" with the authority of the UN. The leadership had to withdraw its own statement on Iraq amid fears that unions would switch sides and inflict a second humiliating defeat on Mr Blair, and the party's anxiety over Iraq was illustrated by the 40 per cent support for the anti-war motion.

In Blackpool last night, ministers launched a strong counter-attack against the unions after the conference threw out a statement by the party leadership defending the Government's public sector reforms. Delegates approved by 67 per cent to 33 per cent a call by Unison for an independent review of PFI.

Charles Clarke, the Labour chairman, sought to portray the unions as out of touch. He pointed out "the stark difference" between the votes cast by the unions and constituency party delegates, accusing the unions of representing "producer" rather than "consumer interests".

Mr Clarke insisted that the Government would not drop its PFI policy. He said: "There is absolutely no way our fundamental investment programme will be held up in this way.

"We will continue our policy of PFI and investing in schools and hospitals. We believe that is what the public and the vast majority of our party members would want us to do."