Question: We've heard quite a lot from the party recently in areas like taxation, but not much on health. Where is the party's health policy heading at the moment?

Steve Webb: We've just established a health policy working group chaired by Baroness Julia Neuberger, my colleague in the Lords, and that will run for 12 months.

Certainly in our terms that's a tight timescale - it means consulting at our party conference in the spring and producing a policy paper by next summer which gets voted on next autumn.

So in one sense we're at the start of a process; the working group's set up, we're writing to potential witnesses at the moment and there's a schedule of meetings.

And in a sense we don't start from a blank sheet of paper, we already have a number of views about what the government's doing and what we'd like to do, there's a lot of issues we want to thrash out.

To give you one particular example, there's a bit of a tension I think between on the one hand our desire for local accountability in public services and on the other hand the widespread feeling in the health service that political meddling has been a big problem.

So one of the challenges for our working group is to come up with policies that really give local people ownership and accountability of their health service, but do it in a way that allows clinicians to use their clinical judgement rather than politicians meddling, particularly on a day-to-day basis, in what the health service does.

That's a message that will resonate with the 1.3m people who work in the health service who really want to get on with their job.

The danger is if the message is perceived to be ‘keep politicians out of the NHS', that then sits uneasily with a message that says what we really want is local decisions about local health services taken by elected local people who you can get rid of if you disagree with them.

Question: Are you thinking of giving people this accountability through local authorities?

Steve Webb: In a sense that would be the obvious route to go down because it's already there, it's the obvious local body that has democratic legitimacy.

But we're open to creative ideas, for example you could have directly-elected health boards, or you could build on the overview and scrutiny committees that already exist on local authorities which are learning to scrutinise the health service but have a slightly odd role at the present.

We don't go in with a particular model in mind, but we do think the biggest frustration for local people all too often in the health service is that big decisions are made about local health services and the people who make them are accountable to no one but [health secretary] Patricia Hewitt.

Question: Hasn't the government made attempts to get the public involved in local decision-making about the health service?

Steve Webb: In every possible way except democratically. They abolished community health councils, they created patient public involvement forums and they've now been scrapped so they're going to come up with another one.

They've invented governors and members of foundation trusts, but it's like their policy is anything but local government. Local government has it's limitations but it's also a pretty good basis for local accountability.

Question: Why do you think Labour hasn't gone down that route?

Steve Webb: I think partly because they would lose control. If decisions in the health service are taken by officials, who are appointed by officials who are answerable to the secretary of state, then the centre has control.

If you add locally elected people shaping local health services, suddenly central government might find life more difficult.

We're the party that says vote for us so we can give power away.

Question: One of your main general election manifesto pledges on health was free personal care for the elderly, to be funded through a 50 per cent top rate of income tax. Sir Menzies Campbell has since announced plans to scrap that tax policy – does that mean free personal care is out of the manifesto too?

Steve Webb: The policy remains. The overall tax and spend stance that the party is taking is no net tax increases, and any spending rise has to come through a saving somewhere else.

[Lib Dem Treasury spokesman] Vince Cable is setting about trying to save billions on things like ID cards, and then there will be a list of priority spending areas of which long-term care might well be one.

The health working group will look again at the free personal care policy, not particularly with a view to changing it, but we've got lessons from Scotland where we have bought it in, we've got the Wanless report on paying for care which we'll look at.

If you go into these things saying everything's ruled out from the start there's no point in doing it, but there's no plan to drop the policy.

Question: Are there any certainties you're going into this review with? Are you taking a view on the involvement of the private and voluntary sectors?

Steve Webb: I think at an early stage we're not, because even though most of us have instincts, and Julia Neuberger and I are passionately committed to the National Health Service, in a sense if you end up rejecting certain strategies you need to know why you've done it.

You don't just want to rule them out from the start, we're taking a fairly Catholic approach to what we look at.

But obviously you go in with values you've thought about for a long time, and we're so committed to equal access to health services that anything that undermined that would be a non-starter.

Question: Looking back at Sir Menzies' speech in June when he set out his priorities - he listed tax, education, the environment as top issues, but didn't mention health. How important is health to the Lib Dems?

Steve Webb: Whenever we talk to our voters in the seats we're challenging in, health is the number one concern so we as a party understand how important it is to the electorate.

And politically its salience is going up all the time. We did a report just last week on the threat to district general hospitals so we're taking the issue very seriously indeed.

I'd be very surprised if a spending commitment like free personal care or something on that scale wasn't one of the major spending commitments in the manifesto.

Question: International affairs have been high on the public agenda recently, which is seen as one of the party's core strengths. Do you think the Lib Dems can gain that kind of public support on a major domestic issue like health?

Steve Webb: There was a poll published I think on the night of the local elections which put us fractionally ahead of the other two parties in terms of trust on health.

In a sense the Tories are trying to repair the damage they did by saying nice warm words about the NHS and Labour are losing credibility on the subject, but I think people still believe the Lib Dems are a party that believes in the NHS.

I think a message that says actually there's been far too much central control, meddling, fiddling, constant revolution - that will resonate with the public but also as I said there's 1.3m people working in the NHS, which is about 1 voter in 30, so there's a huge constituency out there.

Question: Isn't it always easier to say you'll cut central controls and meddle less when you're in opposition?

Steve Webb: When you look across Europe we're the only country trying to run a monolithic health service on the scale that we do.

I went to Sweden recently to look at health care, and while in Sweden or Denmark they would regard doing anything at the scale of a population of nine million or five million as being massively centralist, we try and do it for 50-odd million.

So it seems to me there's plenty of evidence from around Europe that healthcare can be run efficiently and effectively at a much, much smaller scale in terms of who makes the decisions and who sets the strategy.

There's plenty of reasons to think that trying to run it at a level of 40m is just undoable and makes it unresponsive and unaccountable.

Question: Does that mean the NHS model is broken?

Steve Webb: I wouldn't say the NHS model is broken, but over-centralisation has grown. The health service didn't employ 1.3m people 20 years ago, and as the system has grown the demands on it have grown, the difficulties of doing it at one national level have got greater.

Clearly there are things that have to be done nationally, you want national standards, you want national good practice on infection control, national oversight on contingency planning, likewise with Nice. You don't want to be making decisions about drug appraisals in 100 different places - but beyond that there's a lot more that can be done locally and responsively.

Question: So we could be looking at some radical policies?

Steve Webb: It's going to be about substantial decentralisation. We've always had a strong message on public health, on prevention, because ultimately the biggest improvements in people's health over the last 50 years haven't come through the NHS, they've come through reductions in smoking and legislation on the environment.

So part of our message has always got to be sorting out the environment and education is probably the best thing you can do to improve health. But having said that, politically you need to have things to say about the organisation of the national health service.

I think beyond criticising centralised targets perhaps we've been a bit thin on that in the past, and that's one of our priorities - to have a clear message for people.

What will they get? They will get a commitment to a national health service publicly funded but with much more say over how it's run in terms of local priorities, but then we'll also let the front line professionals do their job.

We want much more stability, that's got to be a key word for us. There's been so much turmoil, so much waste, so much uncertainty, we need long-term stability now.

Question: Do you have any other priorities?

Steve Webb: People sometimes write to me saying will you promote such a treatment or such and such a device, and I say politicians aren't the people who should be doing that.

One of the things we will be looking at quite hard is the role of Nice. At the moment we're in a halfway house - some drugs are approved by Nice, some treatments are, but others aren't and you get some very odd results from that. You get drugs that are probably quite effective but aren't being used, or drugs that have been approved but aren't being used in certain places.

Some things the NHS does clearly aren't cost effective but have never been appraised. We want to look at whether you can again combine a local, responsive and accountable service with some national learning, looking nationally at what works and is cost effective and applying that locally.

Again there's a tension there, you want the best done everywhere but you want local people to decide what's done in their area and we'll have to resolve some of that.

Question: Do you envisage funding the NHS through local authorities?

Steve Webb: In the long term there is a logic to saying if local people set local health priorities they should also be able to determine the scale of local health services.

I should say local health and social services, because we need to break down the barriers between health care and social care, we see them as two sides of the same coin.

The Panorama programme about people being denied continuing care when they clearly need it was to do with this artificial divide between health and social care.

One of our themes will be about breaking those down, and the more you do that the more it makes sense to localise it.

There's no immediate new local taxation proposals, but I think the long-term logic must be more local flexibility over what's spent.

Question: You've mentioned the importance of national standards, is there not a tension there with localisation?

Steve Webb: One of the things we'll be looking at is whether you can define some sort of citizens' national entitlement wherever they are, some sort of agreed minimum that has to happen everywhere.

Clearly everyone would expect the same standards of infection control and hygiene to apply wherever you are, but on the other hand you want a local population to be able to have, if you're in an urban area we want more on drugs treatment say, that local flexibility.

Question: How is the mood in the party ahead of conference next month?

Steve Webb: I think it's pretty good. We had the extradition issue almost immediately before the recess where we were setting the parliamentary agenda, the business of the day was cleared for us to lead a debate on all of that.

I think those are core Lib Dem issues, civil rights and civil liberties, so people felt very positive about it.

Bromley [by-election result] was really very good - could have been better but it was still an excellent result and people were very encouraged we had a big swing from the Tories in their heartlands.

I think actually after a pretty turbulent six months most of us would have taken where we are now on the first of January.