Leave public services alone, Blair told

Tony Blair has been warned against opening a "second front" in his increasingly tense relations with the Labour Party by experimenting with more public service reform.

The Prime Minister has alarmed Labour MPs by suggesting that he wants to explore new ways of charging parents of schoolchildren and NHS patients.

His call for "new forms of co-payment in the public sector" risks exacerbating the growing revolts over Mr Blair's reforms to the NHS and to higher education, both of which have brought him into conflict with the Chancellor, Gordon Brown.

More than 100 Labour MPs, including the former health secretary Frank Dobson, are openly opposed to the idea of converting some NHS hospitals into foundation hospitals, as permitted in legislation to be brought to the Commons next week. Mr Brown has insisted that the Treasury must have control over how much foundation hospitals can borrow from private sources. The Government is facing an even larger rebellion later in the year when it attempts to legislate to allow universities to charge top-up fees. Over 170 MPs, 140 of them Labour, have openly opposed the idea, allegedly with private support from Mr Brown.

In an essay for a magazine published by the former Cabinet minister Peter Mandelson, a sworn enemy of Mr Brown, the Prime Minister has suggested that the Labour Party will have to be yet more "radical" to avoid being outflanked by the Conservatives.

Mr Blair wrote: "We need to think through how our political and intellectual enemies will attempt to reposition themselves. That will enable us to define the next phase of progressive politics.

His essay for the magazine Progressive Politics calls on his intellectual backers to help rethink the concept of the Third Way – Mr Blair's name for the political philosophy he shares with the former US president Bill Clinton and several European leaders. It also suggested that the principles behind foundation hospitals should be applied "far more systematically" to other public services.

Mr Blair added: "We should be far more radical about the role of the state as regulator rather than provider, opening up healthcare, for example, to a mixed economy under the NHS umbrella. We should also stimulate new entrants to the schools market, and be willing to experiment with new forms of co-payment in the public sector."

The idea of creating a mixed economy in the NHS was tried by the Conservatives in the 1980s, but reversed when Labour came to power. The word "co-payment" has been interpreted as a call to issue vouchers to parents for school places, an idea the Conservatives considered and dropped.

Mr Dobson warned: "It has never been the policy of the Labour Party to introduce a mixed economy in the health service. Our commitment to the NHS distinguishes us from the Tories. Talk now of co-payment – in other words, charges, fees and perhaps vouchers – cannot possibly do anything other than discriminate in favour of the well-informed and well-off.

"The Prime Minister knows his stance on Iraq has alienated a huge portion of the membership of the Labour Party and its supporters. The policies outlined in this document put him in danger of opening up a second front with the membership and supporters of the party."

Paul Farrelly, a newly elected Labour MP who has been leading the revolt over student fees, warned: "Seeing what is happening in universities, it's of great concern to people like me that these ideas are going to run amok through all our public services without the party having discussed them at all.