Mandelson accuses Tories of planning 'indiscriminate' cuts

The party is over for the public sector and it will have to make big productivity gains to help the Government squeeze spending, Lord Mandelson will warn today.

The Business Secretary will demand cost-saving measures as a quid pro quo for the billions Labour has pumped into public services since 1997. In return, he will promise that Labour will protect frontline services and give staff more freedom to run them.

Mapping out the general election battleground in a keynote speech, he will contrast Labour's approach with the "slash and burn" programme being drawn up by the Tories. He will accuse David Cameron of planning "deep, savage, indiscriminate across-the-board spending cuts," adding: "The Tories contemplate this with thinly disguised zeal because they want to create a small state".

But Lord Mandelson will warn Labour that it will only mount an effective attack on the Tories if it curbs spending to reduce public debt and advocates bold public sector reform.

His warning to echoes a landmark 1975 speech during a previous economic crisis when the Cabinet minister Tony Crosland warned local authorities: "The party is over."

Speaking to the Labour modernisers' group Progress, Lord Mandelson will say: "The huge catch-up investment in public services the government has made during the last decade should make higher productivity and higher standards possible."

He will argue that a large amount of higher productivity and improved services are possible. "We expect, and ask for, ever-increasing productivity in the private sector. Now that we have built up the infrastructure in our public services, the same expectations must apply to the public sector."

Lord Mandelson will say that Labour cannot allow itself to be painted as oblivious to economic conditions. Claiming that New Labour had been "wise spenders, not big spenders" for the sake of it, he will say: "We do not believe that we should try to solve problems simply by throwing money at them. We need to be: 'effective state' social democrats, not 'big state' social democrats."

The Business Secretary will add: "Our conception of the role of government must evolve further. It is clear to me that we must continue to transfer power to parents, pupils, and patients. We want public service professionals to have greater freedom to innovate."

He will say that Labour's guaranteed service entitlements, such as a maximum 18-week wait between a GP visit and hospital operation, will only be achieved by allowing frontline professionals to trust their own judgement in delivering change.

"The way forward is not to get rid of individual service entitlements as the Tories propose," he will argue. "It is to set a framework that allies these entitlements to the creation of a greater space for our public servants in how they deliver the services for which they are responsible. These are boundaries we in Government must respect. If we want innovation from our public servants we must ensure they have freedom and scope to achieve it."

Gordon Brown, the Chancellor Alistair Darling and Lord Mandelson have agreed a three-point plan to: continue the economic stimulus and deliver "real help" to get the country through the recession, invest in economic growth and pay down public debt while preserving frontline services.

Mr Cameron is set to unveil similar plans to devolve decision-making and the Tories are bound to accuse Labour of a death-bed conversion after 12 years of "top down government." Public sector unions will regard the call for greater productivity as a barely coded demand for job cuts.