The inquiry will be the third by the 10-member committee set up by John Major after MPs were involved in the "cash for questions" scandal. The first recommended that MPs should disclose the levels of their earnings from outside consultancies and was bitterly opposed by many Tories; the second, into quango membership, is to be published shortly.
The new inquiry will focus on the potential for council officials to benefit from the privatisation of town hall services. It will want to examine whether the rules for relationships between town hall staff and firms working under contract for the local authority are up to date and are bound by proper safeguards.
Concern has been growing that officers can reap rewards from the contracting- out of local services in ways that would be unthinkable for Whitehall's civil servants.
Nothing in present rules governing town halls stops a local official from advising councillors on privatising a service, setting out the terms for businesses to tender, and then quitting his job to join the successful tenderer or even take over the service through a management buyout.
Some council experts have already told the Nolan Committee that officials are free to set the brief and the tender to suit specific businesses. The running of contracted-out computer services by former officials in Wiltshire and the forming of housing associations by town hall staff to take over council housing have caused particular concern.
An inquiry into the workings of town halls should please the Prime Minister. Mr Major has urged Lord Nolan to study local government and was said to be appalled by a proposal that the committee should study the funding of political parties.
The interest in local authorities may well surprise councils, which believe their world is run within an already rigid framework. Unlike the Cabinet, council members have to make their decisions in public. Members of minority parties must be given seats on committees and councils cannot select their own auditors.
Councillors are also held accountable for their decisions through personal surcharge, and some officials want Nolan to investigate whether this is too harsh a penalty to pay.
Other controversial issues the committee is expected to study include the extent to which decisions are made by councillors behind closed doors in political group meetings held before council committees, and the planning system and its potential abuses. Planning permissions are among the most commercially sensitive decisions a council can make and the committee has received many letters from the public about planning.
The committee will also study just how well local government does operate within its existing framework.
Rodney Brooke, secretary of the Association of Metropolitan Authorities, said the committee would find a healthy state of affairs in Britain's town halls. "There are stringent rules and a remarkable absence of corruption in local government. We feel the rules we work under should be addressed elsewhere, such as to quangos."
But Professor John Stewart of the Institute of Local Government at Birmingham University said the contracting-out of services had brought problems which did need to be studied. "There have been incidences of officers advising their members that they should contract-out a particular service in a particular way and the staff has then brought out the service and made a great deal of money."
An official announcement on Nolan's local government inquiry has been postponed until mid-May because of the clash with local government elections.
Another option for the committee would have been to study regulation of the utilities and financial services, and at least two of the 10 members felt this was an issue requiring urgent attention.Reuse content