TONY Blair will today brush aside last night's humiliating conference defeat at the hands of the trade unions by reaffirming his determination to use private money to pay for vital improvements in public services.

In what is becoming his most important address to a Labour Party conference since he took over as leader in 1994, the Prime Minister will underline a growing clash of cultures between New Labour and Old Labour over the way better health, education, and transport services are to be paid for.

Last night, by 67 per cent to 33 per cent, the unions inflicted only the second conference defeat of Mr Blair's term as leader by successfully calling for a moratorium on the use of private finance. But today, Mr Blair will demand that the use of the Public Finance Initiative (PFI) be speeded up.

He is expected to say: "We have not done enough to modernise public services. It is now time to increase the pace of reform - not mark time."

Mr Blair will say he holds true to the vision of the welfare state set up by the 1945 Labour Government - but will insist that Britain cannot live in the past.

A spokesman for the Prime Minister said that 1945 was regarded as a "great achievement, but that settlement must be recast so that we now treat individuals as individuals".

This, Mr Blair will say, must mean devolving more power to local staff on the front line. For instance, more "foundation hospitals" will be set up where staff have the freedom to raise their own money and make their own strategic decisions.

A similar theme will be applied to reform of the Criminal Justice System.