Can Cameron's formula fix the 'broken' society?

David Cameron's big idea is to mend Britain's "broken society", tackling the root causes of poverty and deprivation rather than throwing more money at them. His aides admit privately he will need to explain his mission a million times before the public will hear his message – let alone be convinced by it – but that won't deter him.

Despite Tory criticism of Gordon Brown's economic management, the differences between the two main parties on economic policy are not huge. To find his unique selling point, Mr Cameron is attempting a daring raid into Labour's anti-poverty territory. Just as Margaret Thatcher transformed the economy in the 1980s, Mr Cameron's goal is to reshape society, a task regarded by many people as the missing piece of the Thatcher revolution. He argues that, in the global economy, Britain cannot enjoy economic success without social success too.

The Tory leader is convinced that Labour's top-down, bureaucratic approach has failed after 11 years. Child and pensioner poverty rose last year and social mobility has stalled. The money has been pumped in but hasn't worked, say the Tories. After a two-year policy review, they claim to have found a new way.

In the "post-bureaucratic age" promised by Mr Cameron, the search for "silver bullet" government solutions to these intractable problems would be replaced by bottom-up, localised ones to tackle the causes – whether drug or alcohol abuse, family breakdown, crime, unemployment and benefit dependency. A Tory government would put its faith in voluntary groups, allowing them to make a profit for running publicly-funded services to give them an incentive to expand. Some senior Tories admit privately that ensuring national coverage remains the "$64m question" but the party leadership is convinced that it now has the answers.

Greg Clark, the Tories' spokes-man on charities, said: "When you look closely at the problems, you recognise that they contain a myriad of often personal problems that would be best addressed by groups or communities. They are detailed and multi-faceted, so it's not surprising that the solutions are likely to be diverse, and flexible. Labour's analysis is driven by its preferred solutions. It sees macro problems and macro, mass-market solutions."

The Tories say that approach will run through their entire programme for government. To reduce reoffending, public sector prisons would become "prison and rehabilitation trusts", responsible for offenders after they are released as well as in prison – and paid a premium if criminals stay out of trouble for two years – as would privately-run prisons.

On welfare, the Tories would use private firms to get people back into work and pay them by results – an approach adopted last week by James Purnell, the Work and Pensions Secretary. He backed proposals in a government-ordered review by David Freud, an investment banker, which had already been endorsed by the Opposition.

The Tories deny Labour has shot its fox, saying Mr Purnell has done only "70 per cent" of what is needed on welfare reform. "It is our job to bring forward additional ideas," Chris Grayling, the shadow Work and Pensions Secretary, said yesterday. "If there is consensus around those, that is great."

Tomorrow, Mr Grayling will highlight the rich-poor divide in many of Britain's cities. "We have local areas of extreme deprivation and social alienation from which few people escape. It's as if there are glass walls around them – a parallel culture existing alongside all of us in our daily lives," he will say.

The Tory high command hopes that the party's new "bottom-up" approach will prove as seismic a change as the economic reforms introduced by Baroness Thatcher and largely accepted by Labour.

"There is a tide of ideas that runs," Oliver Letwin, the Tories' policy chief, said. "In the 1970s, there was a Clause IV economy, then we had a free market economy in the 1980s. I think there is now a tide running against Labour's centralised, bureaucratic approach. Our vision of a post-bureaucratic age accepts that there is a profound role for the state – not in micro-managing but in creating frameworks to allow problems to be addressed, not in a way which increases demands on the taxpayer."

Mr Letwin added: "My great hope is that our policies will be virtually complete by the middle or the end of next year and that they will stand the test of time – not just in a Conservative government but, like the free market revolution in the 1980s, become a lasting new consensus. I really feel we are in the vanguard of something that becomes the accepted wisdom in Britain."

The Tories reject Labour claims that their plans mask an attempt to cut state spending on the most vulnerable people and leave them to stand on their own two feet. But senior Tories admit that if the new approach works, the substantial savings could allow them to cut taxes in the long term. "If we could lift people out of multiple deprivation, crime, drugs, worklessness and family breakdown, we would be able, over time, to significantly address the demands society places on the taxpayer," said Mr Letwin.

That echoes Labour's 1997 election pledge to "cut the costs of economic and social failure"; yet overall Government spending has risen. Labour claims that Mr Cameron showed his true colours in a speech in Glasgow this month in which he appeared to blame people for being fat and even poor.

In what he now refers to as his "fat speech", the Tory leader said: "We talk about people being 'at risk of obesity' instead of people who eat too much and take too little exercise. We talk about people being at risk of poverty, or social exclusion: it's as if these things – obesity, alcohol abuse, drug addiction – are purely external events like a plague or bad weather." For some Tories, the speech showed the danger of moralising on such sensitive issues.

Labour accuses Mr Cameron of planning to unwind Mr Brown's flagship tax credit scheme, which has redistributed money from the better off to the working poor. That would mean a tax rise for people on low incomes, Labour claims. The Tory leader argues that Labour's strategy has reached "the end of the road" but his aides deny that tax credits would be dismantled.

However, a Tory government would be unlikely to increase them. "You can't address poverty just through financial means," said Mr Clark. "It is necessary but not sufficient. You need a policy mix to support people to overcome the causes of poverty. Unless you take direct action to help them, you would never address the causes."

Voluntary groups are excited by the new freedoms they would enjoy to take on a bigger role in providing state-run services under the Tories. But not everyone is convinced. For some, Tory promises to reward marriage through the tax system shows the limits of the Cameron modernisation project. It stems from two major reports on social justice by Iain Duncan Smith, the party's former leader, which have heavily influenced its new approach. He found that almost half of cohabiting parents split up before their child's fifth birthday, compared to only one in 12 married parents.

Fiona Weir, chief executive of One Parent Families-Gingerbread, said: "A deep personal commitment to marriage and concern about family breakdown drives Mr Cameron's thinking. But Conservative policies must take account of the reality that 3.2m children grow up in homes where their main carer is single, divorced, separated or widowed, a path most of them did not lightly choose. It's time for fresher Conservative thinking on what support families of all kinds need to break the cycle of poverty and inequality that blights our society."

Key policy commitments

Benefits

Increase working tax credit for 1.8 million couples withchildren at a cost of £3bn.

Work for Welfare

Unemployed refusing reasonable job offers could lose the right to claim benefits for three years; jobless claiming for more than two years out of three to do community work.

Crime

Convicted criminals to serve a minimum sentence handed down by the judge; double the sentencing powers of magistrates to 12 months imprisonment; scrap early release scheme; "crime mapping" to show level of crime in an area.

Prisons

Extra 5,000 prison places, funded by selling old jails that are on high-value sites.

Police

Cut paperwork to put more police on beat; increase stop and search powers; forces to meet local needs; chief constables accountable to directly elected commissioners or mayors.

Identity cards

Scrap national ID card scheme.

Immigration

Unspecified annual limit to cut "significantly" non-EU economic migrants; single unified Border Protection Service.

Rights

Replace the Human Rights Act with a British Bill of Rights more in line with "traditions and common sense".

The unanswered questions

*Will the Tories' plans to contain the prison population be undermined by their calls for automatic jail sentences, such as those convicted ofcarrying a knife?

*Has Labour scuppered their flagship welfare policy by adopting key planks of it, such as using private firms to get people back to work?

*Could voluntary groups really provide the nationwide coverage needed to tackle difficult social problems?

*Would the Tories dismantle Labour's system of tax credits?

*Why do the Tories refuse to match Labour's target to abolish child poverty and describe it only as an "aspiration"?

Two faces to watch

Nick Herbert

Effective campaigner onissues such as the countryside, public service reforms and opposing British entry to the Euro before becoming the MP for Arundel and South Downs in 2005.

A close ally of David Davis, he helped to run his two leadership campaigns. Now regarded as a key moderniser in Cameron project.

Had rapid promotion to police spokesman and then to Shadow Cabinet 13 months ago as shadow Justice Secretary. Won Tory plaudits for balanced, new policy on prisons, including stronger accent on rehabilitation to reduce re-offending. Would be a key figure in a Cameron cabinet.

Greg Clark

Key adviser to Cameron and fellow moderniser. A special adviser at the Department of Trade and Industry when the Tories were last in power. Then worked as BBC's controller of commercial policy before becoming the Tories' head of policy in 2001 and MP for Tunbridge Wells in 2005.

Influential in new thinking on giving voluntary sector a key role in delivering publicly-funded services. Sparked internal party controversy in 2006 by saying it was time to focus on ending "relative", not just "absolute" poverty. Junior frontbench spokesman on charities, social enterprise and volunteering, tipped for early promotion to Shadow Cabinet.

Thinking time...

It is a curse that afflicts all political leaders: having no time to think. Gordon Brown often does his thinking at the crack of dawn because his diary is so full. And a remarkable conversation when David Cameron met Barack Obama on Saturday was picked up by an ABC News microphone.

Cameron: Do you have a break at all?

Obama: Actually the most important thing you need to do is to have big chunks of time during the day when all you're doing is thinking ... The biggest mistake that a lot of these folks make is just feeling as if you have to be...

Cameron: These guys just chalk up your diary.

Obama: Right. In 15-minute increments ...

Cameron: We call it the dentist's waiting room. You have to scrap that ... you've got to have time.

Obama: And ... well you start making mistakes, or you lose the big picture, or you lose a sense of, I think you lose a feel ...

Cameron: Your feeling. And that is exactly what politics is all about. The judgement you bring to make decisions.