Nick Clegg has challenged the Liberal Democrats to "think daringly" in the coming year.

In a keynote speech on public services on Saturday, the Lib Dem leader said his party's manifesto must "be bolder, clearer and stronger than ever before".

Clegg said the voters must be given more power over their everyday lives through greater control of their own healthcare and their children's education.

And confronting sections of the party opposed to public sector reform, he supported "freedom, innovation, diversity and choice" as "liberal" concepts.

He said Labour and the Conservatives had left open an opportunity to set the agenda on public service reform.

He claimed: "Tony Blair's reform agenda was deeply flawed - timid in parts, misguided in others.

"But under [Gordon] Brown there is no reform agenda at all. He's quietly burying many of his predecessor's policies without spelling out what comes next.

"David Cameron hopes to persuade us that his party is changing.

"But among the mixed messages and half-promises, it seems to me their instincts on the big issues haven't changed a bit."

Speaking at a conference for Lib Dem members to contribute manifesto policy ideas, he argued that they must not be afraid of new thinking.

"I stand for the following principles: the state must intervene to allocate money on a fair basis in our heath and education systems; to guarantee equality of access in our schools and hospitals; and to oversee core standards and entitlements," Clegg said.

"But once those building blocks are in place, the state must back off and allow the genius of grassroots innovation, diversity and experimentation to take off in providing an array of top class schools and hospitals. 

"Freedom. Innovation. Diversity. Yes, choice too. These are liberal words. Let us take them back."

Schools

On schools he said the exam system must be reformed to recognise employable skills and raise attainment.

"I don't think it should be acceptable for any school to have over half of young people leaving without five good grades," Clegg said.

"It shouldn't be acceptable that we have such low standards for GCSE pass scores that the government reports as 'passes' some grades which we know are in reality of no value in today's labour market.

"You can get a G, in some cases, for a mark of about 20 per cent. It's time to call a fail a fail, and raise expectations by abolishing the two lowest pass grades for GCSEs."

And he proposed a new model of school control to give more headteachers the freedom to innovate enjoyed by the limited number of city academies.

"I want us to look at establishing a new liberal model of schools - let us call them free schools - that are non-selective, under local government strategic oversight but not run by the council, and free to innovate to drive up standards for all our children.

"They could be established by any suitable sponsor, including parents, educational charities, voluntary and private organisations with the right credentials."

Health

On healthcare, Clegg urged a more devolved NHS to a local and personal level.

"I am totally committed to the National Health Service. It must always remain free at the point of use, accessible to all," he said.

"But people need to be able to take more control both of its management, and their own healthcare.

"So every patient should have a guarantee of treatment within a specified waiting time - and to drive the NHS to deliver that, everyone should have the right to private treatment, paid for by the NHS if the waiting time's not met.

"And patients should have more control over their care - where possible with budgets devolved to individuals for long term and chronic conditions.

"In particular, these rights are crucial for people with mental health problems. Mental illness affects one in four British families: it can no longer be neglected just because it doesn't make a good photo opportunity."