Fresh to his job as prime minister, with boundless energy and hope, David Cameron told assembled locals at a Relate centre in Leeds that he had made a fantastic new signing to his team trying to improve the lot of families.

"She refuses to believe some people are lost causes and has a proven track record," the prime minister boasted, "which is why I have asked her to come on board to help us." Less stuffy state bureaucracy; more focused, personalised support. "Emma Harrison understands that," Cameron chirped.

Fourteen months on, and things don't look so sunny. Harrison has not only quit as the Cameron's "family tsar" but also as the boss of A4E, the company she formed 25 years ago, following the arrests of four members of its staff on suspicion of fraud.

Harrison says she doesn't want the "media attention" around her to damage her firm's prospects. There is a £15m contract for the rehabilitation of prisoners to be awarded, for which A4E is still the preferred bidder. The company still has £438m of contracts under the Work Programme. And along with a money advice service and some apprenticeship work, A4E is still earning about £180m a year by carrying out services on behalf of the state. There is a lot to lose.

But how has A4E, a company with an "abysmal" record, according to parliament's public accounts committee, got so rich?

The clue may lie in its company accounts. "At present, A4E's sectors benefit from a broad cross-party consensus," it says. In other words, ministers, be they Labour or Conservative, have come to believe that private profit-hunting firms do it best – and cheapest.

It was the agenda that Oliver Letwin, the coalition's policy minister, was getting at last July when he told a thinktank that the public sector had failed to improve its productivity in the past 20 years and that the public sector needed "fear and discipline" instilled into it.

Critics say the same agenda is driving the reforms being pursued by the health secretary, Andrew Lansley, which would encourage GPs to look beyond NHS hospitals when they seek a surgeon. From schools to universities, hospitals to prisons, it is the agenda that is increasingly seeking private or independent entities to take over from the state.

Circle Healthcare, run by a former Goldman Sachs executive, is already managing one NHS hospital that had amassed unwieldy debts. The Observer has learnt that Circle is seeking control of another three hospitals by 2014, according to a trading update delivered to the stock market last week.

In higher education, Montagu Private Equity is in talks to take over the formerly charitable College of Law in London, as the latest figures from the Department for Business, Innovation and Skills reveal that the amount of money given to private institutions by the state in the form of student loans has doubled in four years from £15m to £33m. The Ministry of Justice last week announced the tender of contracts worth up to £3bn for electronic tagging of prisoners.

These sums seem huge, but the political consensus that Harrison cites in her company accounts says it would cost more if the state carried out these services. The consensus has treated big private outfits such as A4E well. Smaller independent firms and charities argue that it has treated them too well, and at their expense. At a recent meeting with the employment minister, Chris Grayling, the third-sector outfits, particularly those which had worked with the long-term unemployed, complained that big private firms were taking all the business and muscling them out of any pay days. Those who attended the meeting did not leave with the impression that the government was going to act.

John Pugh, a Liberal Democrat MP, said he feared for the public sector and wants Harrison's so-called consensus to be debated in the open. "A clear consistent ideology, not pragmatism, is driving this. Under vague slogans like 'diversity and choice' or 'opening up public services', you can engineer a situation where direct public sector provision in effect disappears as public bodies and private firms become utterly indistinguishable."