Donald Macintyre: Mr Blair needs to clear up this mess of his own making

It's hardly the way you would have planned it if you had the chance. A few days before Tony Blair begins the new political season in earnest with a speech to a restive TUC, Lord Simpson of Dunkeld, once one of the Labour Government's favourite businessmen, is ousted after the catastrophic collapse of his company's share price. More to the point, he is due for a pay-off of £1m. In stark contrast to the fate of some 2,000 rank-and-file Marconi employees made redundant in the UK alone this year.

Like Lord Simpson they are highly vulnerable to the changes in international markets. Unlike him they are not comprehensively cushioned against their effects. At a time when industrial relations in the private sector are rather good, you don't have to be a hotheaded rabble rouser to be rather brassed off by this.

If one were needed, it's also a neat reminder, just as the Prime Minister squares up to defend to a highly sceptical audience his intention to expand the use of the private sector in the provision of public services, that even the starriest entrepreneurs don't have all the answers all the time. A point which will not be lost on those union leaders gearing up to launch an attack on the Government over what they see as its excessive faith in the private sector.

To the admittedly modest extent that this will form part of the background to next week's Congress, it's all the more irritating since the mechanics have been arranged in ways that should limit some of the damage inflicted by the highly critical motion the TUC will pass next week. The TUC has a good deal more courtesy than it is often credited with. It therefore long ago decided not to hold its public services debate until after the Prime Minister had spoken, on the grounds that to hold it before he arrived would have been plain rude. A happy consequence – from the Government's point of view – means that all those angry speeches will be made on Wednesday afternoon, when their media coverage will now be swamped by that of the Tory leadership result.

And while the motion will be strongly worded, the age-old persuasive skills of Congress House have been deployed to composite a version that smooths out a few of the most jagged edges of the original phrasing. Instead of a theatrical cliff-hanger of a debate in which ministers will have to wait to the last minute to discover whether the militants or the moderates are victorious, a slightly more consensual critique than the Government's most militant critics would have preferred will now be passed without dissent. What's more, the Tory leadership could provide an inviting context for Mr Blair's speech. If Mr Duncan Smith, especially, looks likely to win, then his state-shrinking vision can be sharply contrasted with the Government's own. Which doesn't alter the fact that the Prime Minister has a tough job on his hands next Tuesday.

In one (important) sense this is an absurdly artificial row, though largely of the Government's own making. It has its roots in the one dies horribilis suffered by Labour during the election campaign when – among other things – John Prescott threw his punch. It was earlier in the day, in the wake of a selectively leaked and over-spun series of recommendations to extend private sector involvement in the public services, that Mr Blair made it clear that no vested interest would be allowed to stand in the way of innovative public services. It looked to some of the unions – and purported to look to some others – as if the Prime Minister had a secret masterplan to "privatise" the public services.

The reality was more mundanely electoralist, if not necessarily much more commendable. It created a "story" about the manifesto – and one which was distinctively "New" Labour.

Most of the ideas the Government was promoting had already been trailed well before the election. What's more – though he was curiously reluctant to point this out – in the case of health Mr Blair had explicitly rejected advice to make reform a pre-condition of funding increases, judging instead that the money was needed first to create an atmosphere in which health service staff would be prepared to back reform. All that got lost in the immediate post-election debate, as did the key fact that none of the envisaged changes for mainstream health and education were intended to scrap the principle of free services at the point of delivery.

In another (also important) sense the row isn't artificial at all. Mr Blair should not assume that disquiet is confined to the posturing of John Edmonds, self-appointed and self-regarding scourge of modernising Labour leaders. Opinion polls show it goes much wider than that. People worry about lousy cleaning firms being allowed into hospitals. The capacity of private nursing agencies to hold the NHS to ransom, highlighted by the Audit Commission this week, is another of several high-profile examples.

It's becoming increasingly clear that Bob Kiley's vision for the Tube was judged even within government at least as viable as the PPP in its present form. And the admirably fair-minded Institute of Public Policy Research report under Martin Taylor argued persuasively that while the success of PFI was clear in prisons and roads it was much less so in the NHS. Mr Blair, who finds it difficult to get the tone right in addressing the TUC, needs to remember that the audience is beyond worry about all this too.

But here's the rub: while the row may not be artificial, it isn't ideological either, vigorous as will be the attempts to make it appear so next week. For the inescapable fact is that the independent and private sectors are already well embedded in public services from training to housing – and parts of state education, where yesterday's White Paper foreshadows a significant extension. And who now complains that their rubbish is collected by a private contractor or their local baths are run by a private company?

There are signs, moreover, that at least some union leaders are beginning to realise this. That's one of the reasons why even the teaching unions – which usually tend to vie with each other to be more thunderous – produced a fairly mixed response to the relatively radical proposals to invite private and voluntary sector bids for new, as well as failing, schools in the White Paper. (The other is the fact that Estelle Morris, an ex-teacher, has demonstrated that she actually likes and respects her former colleagues).

Mr Blair, in other words, doesn't have to retreat next week, as he certainly won't. But he does need to show that he is sensitive to case by case criticisms. He does need to remind his audience what the goals of reform actually are. He does need to reassure those unions – and the wider public – that the private sector is not some holy grail, while insisting that it has an important part to play.

His difficulties are compounded by the fact that he probably also needs to talk down expectations – increased, whether wittingly or not by the election campaign – that the NHS or the secondary school system can be transformed by the end of this parliament. His task next Tuesday therefore isn't easy. But it shouldn't be impossible either.

d.macintyre@independent.co.uk