Labour offers town halls tough love

If anyone in local government expects an easier time under a Labour government, they should think again. While Labour wants to make local authorities more active and less constrained by legislation, it is - if elected - also likely to establish the toughest regulatory regime for councils in history.

The last thing a Labour government wants is to be dogged by scandals in Labour-controlled local authorities. This is why the Audit Commission would be given unprecedented powers to warn local authorities to improve their standards, with the reserve powers to take over the running of bad councils. Each local authority would have to set targets and strategies for all services after public and business consultation, and to have these approved by the commission.

Nor does a Labour government want local authority spending spiralling out of control. Yet the Labour Party is also committed to ending council tax capping, and returning business rates to local control - commitments which, on the face of it, could lead to big council expenditure increases. However, Labour's environment spokesman, Frank Dobson, now talks of ending "universal" capping, which implies that Labour would retain a power of veto over high spenders.

But Mr Dobson's persistent criticism of the vagaries and unfairness of grant allocation to councils makes reforming this a priority. Yet change will produce politically embarrassing side-effects. Not least of these is that giving more money to deprived areas in the North would not only take large amounts from Tory-controlled Westminster and Wandsworth, but also from the Labour-run London boroughs.

Mr Dobson reaffirmed this month his party's commitment to releasing "the takings from the sale of council houses for investment in new houses". There is, nonetheless, discussion within the party about allowing some of the capital receipts from council house sales to be spent on other capital projects, such as improving run-down schools.

But the big problem with using capital receipts is that the councils with the biggest stockpiles are Conservative-controlled district councils which have no wish to build new municipal housing. Deprived Labour-run inner-cities have precious little in the way of capital receipts.

One option being considered by Labour's housing team is to freeze capital receipts held by some authorities, but use them as the basis for other councils to borrow money for new home-building programmes. Another proposal is that permission to spend capital receipts will depend on involvement of a private sector partner.

It is likely that any home-building programme encouraged by a Labour government would involve local housing companies, partnerships between councils, tenants and the private sector. They are seen by Labour as preferable to the continued expansion in role of housing associations, which are criticised for their lack of accountability.

Private and public partnership is now at the heart of much of Labour's plans, and the Private Finance Initiative would be relaunched with greater flexibility.

Joint ventures and profit-sharing agreements with the private sector would also be encouraged as a means of promoting municipal trading and as a replacement for compulsory competitive tendering. One Labour insider said: "The fear is that if CCT is replaced by voluntary competitive tendering, we will just have a return to the bad old days of direct service organisations." Old-style council inefficiency will simply not be accepted.

But what is likely to hit the headlines more than anything else is the possibility of elected mayors to run the big cities, on the lines used in the United States and France. Tony Blair is believed to be very keen on this concept, at least on a trial basis in selected cities, and on full annual elections for councils. Although Labour remains committed to seeing unitary councils across the whole country, this is unlikely to be a priority with the bitter disputes of the last local government review not yet buried.

A Labour government would certainly not represent the cavalry riding over the hill with the bags of money that many Labour councillors have prayed for. It might even lead to some bloody battles between Labour councils and their government. But it would also create a big shift in the culture inside local authorities, and a challenge which many in the increasingly Labour-dominated world of local government would relish.