Ed Miliband's primary task today was to turn the screw on Andrew Lansley. In this, he has been largely successful, but his speech was also revealing for what it says about his future approach to public-service reform.

During the Labour leadership campaign, none of the candidates had an incentive to raise difficult reform arguments, for fear of alienating union and grass-roots votes. This might have been tolerable if Labour had renewed its pitch on public services in its last years in office. But despite repeated attempts, it only came close to a new, post-Blairite paradigm with its manifesto pledges on citizen guarantees or entitlements and public-sector takeovers of weak providers by strong ones. It is fair to say that Labour thinking on public services has not advanced much since about 2004.

The coalition government has made much running dismantling the worst elements of New Labour's statecraft: its indicators and targets, anaemic localism and a latter-day preference for stakeholder management over bold reform. But it has said very little about the big strategic choices. There is no sense in the coalition's programme of which public services best support full employment and an affordable welfare state; of the challenges that an ageing society poses for reform of the NHS and social care; or how real innovation and productivity can be secured in universal services that face enormous cost pressures.

Miliband devoted a substantial section of today's speech to outlining the main long-term challenges facing the NHS, including far higher levels of chronic disease, growing levels of mental illness and the rising social care needs of the elderly. Each of these challenges requires services that are more joined up (integrating NHS care with social care provision, for example) and at the same time more preventative, to take pressure off the acute services.

But they will also entail rising costs. This is why making public services more productive and efficient needs to be a key task for the centre left and why Miliband is right to say that he will be "a reformer of the state as well as the market". If we are to defend high-quality universal public services, at a time when voices on the right are calling for services to be cut back and targeted just at the most disadvantaged, then we need to set out how these can be afforded, given rising cost pressures and the public's reluctance to pay higher levels of tax.

Miliband emphasised that to make services responsive to their users requires strong forms of accountability. Here he needs to learn the lessons of the last Labour government, which generally favoured the use of central targets in order to hold professionals to account. These targets did lead to significant improvements – waiting times fell and the number of failing schools was radically reduced. Nevertheless, there were too many targets that made doctors and teachers the slaves of a tick-box culture. Professionals on the front line need the flexibility to do what is right for individual patients and children, rather than simply follow Whitehall guidelines.

A chance to pull ahead

But if Miliband wants to reduce central targets, how does he ensure accountability to patients and parents? In the health service, the proposed health and well-being boards need to be strengthened by giving them the power to sign off the strategic plans of GP consortiums.

In education, it is crazy for the secretary of state to be directly funding an ever-growing number of free schools and academies from Whitehall. Instead, we should look at the idea of our big cities having an appointed schools commissioner, whose role would be to raise educational standards in their area, allocate funding to each school and provide shared support services to local schools. Having a single individual to perform this role would provide for greater focus and accountability to parents.

In policing, Labour should accept the government's plans for elected police and crime commissioners, but in the long term look at shifting responsibilities for policing in the large cities to elected mayors.

Miliband is absolutely right to point to the lack of patient empowerment in the coalition's NHS reforms: the agenda is all about bureaucratic change or market disciplines. Very little is said about passing power to patients. This is a golden opportunity for Labour to get ahead of the debate, by advocating the devolution of funding to "personal budgets" for those with chronic long-term conditions.

But Miliband is relatively silent on the role of competition in public services. Oppositions always default to woolly talk of "collaboration" and partnership. But competition has its place. In the NHS Blair's 2006 reforms – which gave patients the right to choose from a list of five hospitals and which led to competition for patients between NHS trusts – successfully improved outcomes (PDF) measured by length of hospital stay and deaths from heart attacks.

Labour should oppose the government's proposal to make the promotion of competition the overriding objective of the health regulator Monitor. This is putting the cart before the horse. Instead, its objective should be ensuring the best value for money for the taxpayer: competition may or may not be the best means of achieving that.

Ed Miliband criticised the Health Bill on the grounds that it would undermine the sense of "national mission" underpinning the NHS. He should be careful that talk of the public-service ethos is not used simply to defend vested interests. But his defence of the NHS as a national institution resonates with the "Blue Labour" approach.

The NHS is a popular public institution, which embodies values of solidarity, public interestedness and fairness. It is a British tradition. Any decent society should defend institutions that are run by and large in the public interest and not simply for profit. There is a very real danger that these institutions could be lost in the government's rush to expose every public service to market competition.

Miliband may save the NHS, but can he reform it?

Nick Pearce is director of the Institute for Public Policy Research (IPPR).