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Charities would be allowed to make "substantial" profits from running public services under Tory plans to boost their role being unveiled today by party leader David Cameron.

Mr Cameron will accuse Labour holding back the potential of the
voluntary sector with red tape and centrally-set targets and promise to
set it free.

The publication of the Opposition's proposals is the latest move in a
concerted effort by Mr Cameron to push the Tories as the new
pace-setters on social policy.

And he will accuse the Government of losing sight of the beliefs of
welfare state architect William Beveridge that individuals and groups
had to be allowed to act on their initiative.

Recent research showed that only 12% of charities were paid enough to
cover the costs of helping deliver public services and that innovation
was being stifled by government rules, he will say.

Under the Tory proposals, the voluntary sector would compete to provide
services on an equal footing with private firms and would be given
freedom on how they were delivered.

They would benefit from longer-term contracts and charitable giving
rules would be simplified to help stimulate flagging levels of donations
from the public.

A new network of Social Enterprise Zones would encourage investment in
deprived areas.

Mr Cameron, who will launch the proposals at a Kent community
organisation, will say: "Every day we see new evidence of things going
seriously wrong in our society.  The social challenges we face today are
every bit as serious as the economic challenges Britain faced in 1979.

"And now, just as then, the scale of the challenge demands radical
Conservative reform.

"The big difference in British politics today is about the role of the
state: Gordon Brown believes in top-down state control; we believe in
bottom-up social responsibility.

"Labour believe that only the state can organise and deliver collective
provision: we have a vision of non-state collective provision.

"The modern Conservative Party stands for a simple principle when it
comes to social reform and the role of the state: that there is such a
thing as society, it's just not the same thing as the state.

"So we want to see a transformation in the role of community groups,
social enterprises and the voluntary sector in helping to build a
stronger society for all of us."

The voluntary sector would "provide many of the solutions to tomorrow's
problems", he will say.

"A good society is built from the bottom up: it starts with every
person, in their relationships with family and friends, and how they
combine to make whole and healthy communities.

"And beyond the sphere of the private and informal, there is a public,
organised expression of society. This is where we must look for the
answers that neither the state nor the market can provide.

"That is why one of the most important ambitions of the next
Conservative government will be to expand the role and the influence of
charities, social enterprises and voluntary organisations in our
society. They are the engines of future social progress.

"We will not see the full effects of this approach overnight. Ours is an
agenda for the long term, and the direction of our policy is to be
pursued over many years.

"It will take time to build up the capacity of voluntary organisations
to take on - if they want to - the delivery of significantly more
services currently delivered by the state.

"What is clear is that this approach, if followed intelligently, has the
potential to improve radically the lives of millions of people."