Businesses with a social conscience should have a far greater role in the provision of public services like health and education under a third-term Labour Government, the party's election co-ordinator Alan Milburn said today.

Mr Milburn hailed the growth of the ''social enterprise'' sector of businesses - such as The Big Issue magazine, Cafe Direct and Jamie Oliver's Fifteen restaurant - which compete in the market but reinvest profits in tackling issues of social and environmental concern.

The sector - which now embraces around 5,000 companies in the UK - has the potential to become ''a key partner with Government in modernising Britain'' and to play as large a part in public service delivery as the state or private companies, he said.

At the same time, it provided opportunities for ordinary members of the public to get directly involved in the operation of public services themselves.

The growth in single-issue protest movements, consumer boycotts and local community organisations showed there was a ''thirst for engagement'' among British people which could be tapped to improve services in their area, said the Chancellor of the Duchy of Lancaster. He told a conference of the Social Enterprise Coalition in Manchester: ''We need to move beyond an automatic assumption that the only alternative to the public sector is the private sector.

''Over the next decade, social enterprise and the wider voluntary sector should become as integral to public service delivery in Britain as either the public or private sectors.

''It can help open up public services so they become more responsive and offer those who use them far greater choice. ''I do not argue that social enterprises can - or should - replace the state. The public sector, private companies and social enterprise should be partners, not rivals.''

Social enterprise schemes such as credit unions, housing co-operatives and farmers' markets had given people across the UK the opportunity to get involved in making life better in their neighbourhoods, said Mr Milburn.

''Social enterprise opens the door to local ownership by local people of local services,'' he said. ''It is a means of shifting real power into the hands of working people.

''The profit motive becomes subservient to broader social aims, delivering for the public good.''

The growth in mutual organisations mirrored the development of NHS Foundation hospitals, which are accountable locally rather than nationally, said the former Health Secretary.

''There is a common principle here: public services that are funded and used by the public should be open not just to greater individual choice, but to greater public involvement.''

In the past, governments tended to ''nationalise responsibility'' by keeping all decision-making power to themselves, said Mr Milburn. Recent decades had seen their hold relax a little as they undertook consultation exercises before making key decisions.

''I believe we are ready to move out of that era and into the next,'' he went on. ''One of involvement, where local people get more than just a chance to have a say. They get the chance to decide.

''We have here the makings of a new contract between the state, citizens and services, where the state opens up opportunities and citizens strive to take them; where people who put effort in get something back; where power is passed outwards and downwards to citizens and communities; where the public are genuinely at the heart of our great public services.''

SEC chief executive Jonathan Bland said: ''Mr Milburn's vision that social enterprise will be as integral to public service delivery as either the public or private sectors is a significant step forward.

''We now challenge the current Government to turn words into action and make these commitments a reality.''