Both the unions and business have backed the Queens Speech but remain divided over the use private companies in the public sector.

TUC General Secretary John Monks gave a cautious welcome to the government's plans but urged the government not to take a dogmatic approach in its reform of schools and hospitals.

"This is an ambitious programme of legislation with the reform of the public sector at its heart. Unions look forward to playing their part, working in partnership with the government to achieve public services of which we can all be proud. But during this reforming process, the government must resist the temptation to always see private as good, and public as bad," Monks said.The CBI said business would welcome measures aimed at improving public services and that the private sector could make a positive contribution.

Deputy director-general, John Cridland, said: "Business needs good services in areas such as health, education and transport. The private sector can make a huge contribution to delivering them. Public Private Partnerships have already been successful in providing key services to cost and on time. Since 1997 this has included 35 hospitals built or commissioned and projects covering 373 schools. By working in partnership, the public sector can use private sector expertise and energy to produce better services."

He said that business leaders, who have complained over increasing levels of red tape would watch closely the plans for increasing competition.

"We welcome the drive to enhance competition and the principle of measures to deal with rogue traders and reform insolvency law. The proposals on competition policy are many and various and we will closely scrutinise them to ensure they tackle real problems in a proportionate way. That is especially true for the proposed criminal penalties for operators of cartels, which could be premature," Cridland said.