The threat of a major row over public services at Labour's annual conference has been extinguished after the government pledged to review a controversial scheme under which private firms run local council services.

Unison, the country's biggest union, hailed Local Government Secretary Stephen Byers' announcement as a "major breakthrough".

We aren't proposing that the private sector is a panacea for the problems in the NHS

Health Secretary Alan Milburn

The review of the so-called 'best value' system comes after it emerged some local government workers employed by private firms were on lower pay than council staff.

But union anger at ministers' plans to extend private sector involvement in the public services has only been temporarily stifled by the move.

It also sparked a split over tactics as the GMB faced accusations of using "empty rhetoric" for not backing a motion acknowledging differences between ministers and unions on the issue but welcoming "genuine dialogue".

The motion had been thrashed out after five hours of talks between unions and Labour officials, both anxious to avoid a long-predicted public row in the light of world events.

Big guns

As the wording went to the conference floor on Monday afternoon three of Labour's big guns were rolled out to mollify delegates: Mr Byers plus Health Secretary Alan Milburn and Education Secretary Estelle Morris.

Mr Milburn said: "We aren't proposing that the private sector is a panacea for the problems in the NHS.

"We aren't proposing that NHS hospitals or GP services should be privatised."

The time has come to stop demoralising public sector workers and start co-operating with them

John Edmonds

There was a role for the private sector but it was a "relationship not a takeover", he insisted.

"We aren't proposing that the only salvation for the problems of the NHS lie in the public sector."

But GMB leader John Edmonds made his opposition to further private sector involvement clear.

Health workers had already experienced 20 years of "damaging" creeping privatisation, he said.

"On the basis of that experience we know that Britain would be better off if we got rid of the failed contractors and showed more faith in our public sector workers."

Motion backed

He added: "The time has come to stop demoralising public sector workers and start co-operating with them."

The motion was supported overwhelmingly by delegates but the GMB declined to back it, sparking condemnation from other unions.

MSF General Secretary Roger Lyons said: "People who do not support our motion have no solutions. Posturing is not a solution, it is just empty rhetoric."

John Edmonds: Angry at government plans

Dave Prentis, general secretary of the public sector workers union Unison, was also critical of public-private partnerships - but said he made no apology for maintaining dialogue with ministers "to protect our members facing the effects of privatisation".

Earlier Labour Party Chairman Charles Clarke acknowledged that ministers still had to persuade Labour supporters that private sector involvement in the public services was the way forward.

"I think that's very important if it's to work and be carried through and I believe that through that process we can address some of the uncertainties and apprehensions."

Announcing his review of 'best value', Mr Byers pledged that where evidence of a "two-tier workforce" was found "we will take action to end it".

Unison officials predicted that hundreds of thousands of low paid council workers would benefit from the review, which will last next three months.