Blair's defence of public reforms highlights Treasury split

Tony Blair dismissed criticism that his public service reforms would lead to a "two-tier" system amid growing signs of tension yesterday between him and Gordon Brown over the changes.

The Prime Minister told a press conference the poorest people would benefit from the Government's plans to create more specialist schools and foundation hospitals, and denied they would create an "elitist" system. The Blair camp was fuming at Ed Balls, the Treasury's chief economic adviser and the Chancellor's closest aide, who said there was a limit to how far market principles could be applied without running "grave risks" with the ethic of public service.

Although Mr Blair said the comments were aimed at the Tories, cabinet ministers said they highlighted differences between the Chancellor and the Prime Minister, who called for a further round of "bold" reforms in his speech to this year's Labour conference.

In a pamphlet days later, Mr Balls wrote: "We have to be careful to strike a balance, particularly in public services such as health and education, between encouraging local flexibility and rewarding success on the one hand, and our commitment to tackling inequalities in provision and preventing two-tierism in public service delivery."

Mr Blair admitted there was a "sensible argument" to have on the two-tier issue after Frank Dobson, a former secretary of state for health, accused him of pursing elitist and exclusive policies.

But the Prime Minister insisted: "The middle-class parents or the reasonably wealthy ones can always find a way round the system. They can either buy their children's education or can move to the right place next to the right school. It is for the poorest children on our society that we need these changes and reforms."

Mr Blair also pledged that a long-awaited review of higher education would not make it harder for children from low-income families to go to university. But he refused to rule out the introduction of top-up fees, which he is believed to support and Mr Brown is thought to oppose.

The Prime Minister said a White Paper in the new year would be based on four principles; the status quo could not continue because universities were not adequately funded; universities needed more freedom from the Government; access for poorer students should be improved; and financial barriers should not deter people from university.

Mr Blair told his Downing Street press conference that measures to crack down on anti-social behaviour would form a plank of the Queen's Speech next week at the start of the new parliamentary session. He believed that plans to allow pubs to open 24 hours a day would curb problems near them at closing time.