The decision to privatise the railways was based on "dogma" and large parts of them be taken back into public ownership if Labour wins the general election, Ed Miliband has announced.
The Labour leader said the party would let the public sector challenge private operators to take on the running of rail franchises, arguing it would improve the service for passengers and end the situation where foreign state-owned foreign companies could compete to run trains in the UK without competition from a British equivalent.
The move was announced as Miliband attempted to distance himself from the New Labour era of Tony Blair and Gordon Brown, promising the party would tackle inequality while taking a responsible approach to the nation's finances in a time of continuing pressure on public spending.
Sources said an agreement on the rail policy was "pretty much a done deal" at the party's National Policy Forum (NPF) in Milton Keynes, which is thrashing out the details of plans which could find their way into the party's manifesto next year.
The package has faced resistance from grassroots activists and trade unionists who have been pressing for a return to full re-nationalisation.
In a keynote speech to the NPF, Miliband said the decision to privatise the rail network was based on "dogma" rather than for the benefit of passengers.
He said: "Too often, we know the experience, it put the profits into the private sector and put the risk onto the government.
"We know East Coast has worked in public hands, so on the basis of value for money let's extend that idea and let the public sector challenge to take on new lines.
"Let's end the situation where you can be a European public rail company and run lines, but not if you are a public operator from Britain.
"Let's together set a new course for our railways which will be better for the taxpayer and properly serve passengers."
During the speech, Miliband also set out his plan for a "new settlement" with the British people, with measures aimed at tackling inequality but accepting that Labour could not return to being a party of "big spending".
It was, he claimed, a "programme which has at its heart our commitment to build a wholly new economy, fit for the 21st century".
"It is a plan for economic transformation, a new settlement that is not less ambitious because we live in a time of scarcity, but is more radical, more ambitious because it sets a new direction for Britain."
It was "moving on from New Labour" but "not going back to old Labour".
He said the party was "moving on from a belief that rising inequality is just a fact of life" or that "there is nothing we can do about markets that aren't fair".
He insisted the new settlement involved "not seeing big spending as the answer" as he confirmed Labour would implement a binding commitment to balancing the books.
The Tories, he claimed, wanted a "race to the bottom", with British workers facing "low wages, zero hours, bad terms and conditions".
But he acknowledged that while the problems facing low earners had got worse under the Tories, they had started before David Cameron entered No 10.
He said: "They won't simply be fixed by the recovery and the answer cannot be our traditional answer either, of spending to fix the problem.
"You know and I know we won't have the money."
He added: "For all of the cuts, all of the pain under this government, Britain still has a deficit to deal with and a debt to pay down.
"That's why our programme starts with a binding commitment to balancing the books in the next government.
"We will get the national debt falling as soon as possible in the next parliament. And we will deliver a surplus on the current budget."
Liberal Democrat Treasury Chief Secretary Danny Alexander said: "Ed Miliband is neither credible, nor convincing, when it comes to the economy.
"He talks about 'balancing the books' but knows in Government Labour nearly bankrupted Britain.
"Labour was a liability at the controls of the economy, but thanks to the Lib Dems in Coalition we are slowly but surely cleaning up their mess."Suggest a correction