Plans for the future of local government have been swept away by the Localism Bill and the finance settlement and replaced with a new era of innovation, says Simon Parker

The future for local government used to seem pretty straightforward. Councils were the democratic champions of outcomes for their local area, held responsible through central inspections for the health, wealth and wellbeing of their citizens. Over time, they would probably gain increasing influence over all public services in their area through Total Place and public service boards.

That vision of local government appears to be dead this week, finally swept aside by a combination of the Localism Bill and the finance settlement. In its place, the Coalition is trying to open up a new era of innovation – shaking up the environment in which councils work and hoping something new and better will emerge. The Bill contributes to this by injecting a dose of political steroids into three key trends.

First is an attempt to empower individuals by unbundling public services and transforming them into a series of separate marketplaces. Reforms to schools, policing and health have all prioritised public choice over council coordination. Next year’s public service reform White Paper could go even further, pushing councils down the road of personalised budgets in social care and perhaps also bringing in housing and worklessness. Targets will probably be set for councils to bring the private and voluntary sectors into these emerging markets.

The second key trend – which the Bill majors on – is empowering communities. Rather than councils shaping places, the Coalition wants to help people shape councils. The Bill’s new powers to force referendums on local issues, the planning reforms and rights for community groups to bid to save or run services are all changes that allow the public to change the way their council works and to influence the shape of their towns and cities.

The final trend is for local freedom – expressed to a degree through the new power of general competence and some new flexibility around the business rate. This is probably the area where ministers need to focus their policy thinking over the coming months, especially in terms of developing the community budget pilots into a fuller offer around place based budgets and making councils financially self-sufficient.

If it isn’t entirely clear what these trends add up to, then that’s probably the point. This government takes some pride in not setting out detailed central visions.

Instead, their approach – heavily shaped by the former philosophy don Oliver Letwin – seems to emerge from a philosophical hybrid of Hayek, Schumpeter and Amartya Sen. From Hayek, the Coalition takes the metaphor of a free market approach to public services. Rather than central planning, it is better to allow citizens greater freedom in the marketplace. From Schumpeter, the Coalition takes the idea that innovation emerges from creative destruction – failed ideas and ways of working have to die so that better ones can win out. If you change everything around local government, then local government itself will either change itself, or slowly become irrelevant.

Finally, from Sen, the Coalition takes the idea of capabilities – which implies that rather than trying to build perfect institutions, we should focus on building up each individual’s capacity to make a good life for themselves. The risks of this approach are obvious. If communities are not active enough, then the Localism Bill will have limited impact. Conversely, if the new rights are enthusiastically taken up, they could lead to conflict between neighbourhoods – note that much of the national coverage recently focused on new powers to shut illegal traveller sites.

Finding ways to get the balance right will be a key challenge over the coming years. Councils are now caught in a vice between cuts and increasingly empowered citizens. What emerges from the resulting squeeze is, to some extent, up to local authorities themselves. In the worst case scenario, local areas without either a strong local authority or active citizens could face a future in which Nicholas Ridley’s vision of the ‘nightwatchman state’ is finally realised.

The council might meet once every few months to hand out contracts on behalf of an apathetic citizenry. More ambitious councils might try and become consumer advocates, creating markets for their services and then acting essentially as a combination of market maker and personal shopper. Call a council’s customer helpline in five years’ time and you may find they simply re-route the call to a local voluntary group that can provide a service you want.

Combine this consumer advocate role with the new science of ‘nudging’ and councils have a powerful way to shape places by influencing the choices that citizens make, for instance by making sure school leavers know which skills will help them get a job in the local economy. There is also an important role for councils in identifying and growing the kind of resources that support civic activism – increasing ties of trust, social capital and reciprocity between their citizens.

Whether or not you agree with the Government’s vision, there is no denying that it’s radical. The key to success over the coming years may well be letting go of the past and grasping the new reality. As the futurist Alvin Toffler once put it: ‘The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn.’

Simon Parker is director of think tank NLGN