Blair: We must be bold

On Iraq: "The only chance of peace is a readiness for war" On the Euro: "The euro is not just about our economy but our destiny."On PFI: "The provision of services has to depart from the public sector."On the Middle East: "We must have an Israel free from terror, and a Palestinian state."

Tony Blair vowed yesterday to break up the "monolithic" structure of public services and declared that his Government needed to take bold, tough and painful decisions to "transform" Britain.

In his speech to Labour's annual conference in Blackpool, the Prime Minister defied critics of the use of private finance in health and education by calling for an end to the "one-size-fits-all, mass-production public service". Heralding a bigger role for the private sector, he compared his drive for radical reform to his controversial decision to scrap Clause IV of Labour's constitution, the party's historic commitment to public ownership.

Although Mr Blair's speech was short on specifics, aides said later his plans could mean using private firms to provide public services directly, extending the private finance initiative (PFI) and abolishing outdated working practices that were a barrier to improving services. "It's about choice, diversity and devolution to the front line instead of the current top-down, centralised approach," one close ally said.

Mr Blair appeared to back Alan Milburn, the Secretary of State for Health, in his battle with the Chancellor, Gordon Brown, over the Milburn plan to allow high-performing hospitals to borrow money free from Treasury control. He hailed the proposed foundation hospitals as an example of his new vision for public services.

In a well-received, 55-minute speech, Mr Blair also sounded more upbeat about an early single currency referendum than his Chancellor, saying that "the euro is not just about our economy but our destiny". He added: "We should join the euro only if the economic tests are met. That is clear. But if the tests are met, we go for it."

The Prime Minister set a new target of the end of this year for final-status negotiations on a Middle East peace settlement, including an Israel free from terror and a viable Palestinian state. He said United Nations resolutions should apply to Israel and the Palestinians as much as to Iraq. He said he understood the worry in the party and country over Iraq and promised to pursue a UN solution. But he warned that, if necessary, force would be used. A loss of collective will to deal with Saddam Hussein would "destroy" the authority of the UN.

He said it was "easy to be anti-American" but the basic values of the United States were the same as those of Britain. "My vision of Britain is not as the 51st state of anywhere, but I believe in this alliance and I will fight long and hard to maintain it because it is in the interests of this country."

On his central theme, Mr Blair urged his party and the unions to join his crusade on public services but braced them for painful decisions. "We are at a crossroads. Do we take modest though important steps of improvement? Or do we make the great push forward for transformation? I believe we're at our best when at our boldest. So far, we've made a good start but frankly we've not been bold enough. The radical decision is usually the right one. The right decision is usually the hardest one. And the hardest decisions are often the least popular.

"Just as mass production has departed from industry, so the monolithic provision of services has to depart from the public sector ... We can't make that change by more bureaucracy from the centre, by just flogging the system harder. We need to change the system." Mr Blair said he was passionate about reform because "poor public services and welfare are usually for the poorest". The better-off could buy a better education, move to a better area, know a better doctor or find a better job, he said.

Outlining his vision for a "post-comprehensive era" in education, he called for more specialist schools tailored to the individual needs of pupils. He promised a Criminal Justice and Sentencing Reform Bill in the next parliamentary session that would "rebalance the system emphatically and in favour of the victims of crime".

He offered the trade unions an olive branch on PFI, saying the Government would work with them to end the "two-tier work-forces" under which workers can suffer worse conditions after transferring from the public to the private sectors. But he rejected the conference's demand on Monday for a value-for-money inquiry into PFI, saying he would not allow school and hospital building projects to be put on hold. "This isn't the betrayal of public services; it's their renewal."

Mr Blair attacked pessimism and cynicism on the left and right. He declared that Britain was "a great country on the way up" and said he was optimistic public services could be transformed.

Blair buzzwords

Key words that featured in the Prime Minister's speech and how many times he used them:

'Reform' 18
'Believe' 14
'Europe' 13
'Partnership' 11
'Public services' 7
'Community' 7
'Progress' 7
'America' 6
'Investment' 6
'Left(wing)' 5
'Record' 5
'Renewal' 5
'At our best when at our boldest' 4