The government is scaling back plans to use the private sector to deliver public services, the BBC has learned.
Leaked documents suggest ministers have decided the "wholesale outsourcing" of public services to the private sector would be politically "unpalatable".
Ministers instead want to use more charities, social enterprises and employee-owned "mutual" organisations.
Outsourcing was meant to be a key part of the government's drive to cut costs and reduce the UK's budget deficit.
The shift in policy will raise questions about whether the government can make the savings it has promised - or deliver the services it is committed to - just by using charities and mutuals.
The change will also raise questions about whether the Conservatives are bowing to Liberal Democrat pressure to focus more on delivering public services locally rather than privately.
The government's plans will be unveiled in the long-delayed Open Public Services White Paper which is expected to be published later this month.
The aim of the reform is to find new ways of delivering national public services, such as benefit payments, tax collection, services within the NHS, civil service administration, justice services like prisons and probation, and even the provision of things like driving licences.
The change in the government's thinking is revealed in the note of a meeting in recent weeks between Cabinet Office Minister Francis Maude and the director general of the CBI, John Cridland.
The note, obtained by the BBC, is marked "strictly private and confidential" and was drawn up by the CBI as a record of the meeting.
It says: "The minister's messages were clear cut... the government is committed to transforming services, but this would not be a return to the 1990s with wholesale outsourcing to the private sector - this would be unpalatable to the present administration.
"The government was not prepared to run the political risk of fully transferring services to the private sector with the result that they could be accused of being naive or allowing excess profit making by private sector firms."
Private sector involvement would be limited to joint ventures with not-for-profit groups.
The note adds: "Government is very open to ideas for services currently provided within the public sector to be delivered under a private/government joint venture. Government is committed to new models of partnership, and private sector organisations need to offer joint ventures - joint ventures between a new mutualised public sector organisation and a 'for profit' organisation would be very attractive.
"Government... was very interested in turning existing services into government companies. These would avoid the downsides of 'hassle' and adverse political reaction."'Independent provision'
One source in the outsourcing industry said: "This is a bit surprising. Francis Maude gave the impression when we got called in last year that we would be very much needed.
"There was every expectation that the private sector would be needed to help get the deficit down. This goes the other way. It seems to be different to what the government was committed to a year ago."
The government began consulting on public service reform in November 2010.
In the accompanying Green Paper, entitled Modernising Commissioning, the government said it wanted to "promote independent provision in key public services". It defined independent providers as "voluntary and community organisations, social and private enterprises".
It emphasised how it wanted to save money: "Increasing the diversity of provision can drive innovation and efficiency by increasing competition and consumer choice and can deliver improvements in value for money and outcomes."
In a second consultation document, published at the same time, the government asked: "Can you identify specific opportunities for bringing private sector investment and expertise into the delivery of public services?"
On 17 January this year, the prime minister said in a speech: "We are injecting competition, saying to the private sector, community organisations, social enterprises and charities: come in and deliver great public services."
On 20 February this year, David Cameron wrote in the Daily Telegraph that the government would create a new presumption that all "public services should be open to a range of providers competing to offer a better service" - the only exceptions being national security and the judiciary.Big Society
Supporters of outsourcing claim that it improves the quality and reduces the cost of public services. Opponents deny this and fear that workers' conditions, pay and pensions would be hit if public services are outsourced.
Mr Cridland told the BBC: "The taxpayer gets the best deal if government is prepared to be radical in remodelling public services in looking at a better way of delivering those services with less money to spend.
"I have every confidence in our conversations with government that that's exactly what government will do."
A Cabinet Office spokesman said: "Too often there has been a binary choice between the government providing a service itself or outsourcing it to the private sector. This has been driven by a belief that services have to be controlled centrally, a one size fits all approach which has left little room for innovation.
"We want to change this. As part of building the Big Society, we want to open public services up to SMEs [small and medium-sized enterprises], employee co-operatives, voluntary sector organisations and social enterprises, who may often partner with the private sector. We believe that this will create more innovative and localised services, while also decreasing costs and increasing efficiency.
"Sandwell Community Caring Trust is just one example where since the staff have taken over, back-office costs have halved meaning more money is spent where it matters. We need all parts of society including businesses, social enterprises and charities to play a part in this radical reform and there's no reason the state shouldn't keep a stake so that taxpayers benefit from the increased value of improved services."