David Cameron's attempt to relaunch his Big Society agenda hit trouble on several fronts yesterday as it emerged that American firms could take over the running of libraries in Britain.
The Prime Minister made a passionate defence of his flagship scheme, admitting it would not make him popular or win elections.
However, his pledge that the Big Society was not a cover for big spending cuts was undermined by growing evidence that private firms rather than voluntary groups could land many of the new contracts to run public services.
Mr Cameron faced further controversy by appointing Sir Ronald Cohen, a private equity boss, philanthropist and Labour Party donor, as an adviser on setting up his Big Society Bank. Sir Ronald is understood to be non-domiciled for tax purposes, meaning he can avoid income and capital gains tax on his foreign earnings. Friends of Sir Ronald insisted he paid "a lot of tax" in the UK and said he had worked for 10 years on the Big Society ideas.
The Independent has learnt that LSSI, an American firm which manages 13 public libraries across the US, has set itself a target to manage libraries in eight British local authorities by the end of the year and to capture 15 per cent of the market within five years. Libraries could house coffee shops and bring in self-scanning technology.
Ministers say they are relaxed about having "a Starbucks in the library" if that keeps libraries open. Nearly 400 are threatened with closure, a figure that could rise to 800 by the end of the year.
UK firms will also bid for library contracts. The private sector's interest could undermine the Government's attempt to "sell" the Big Society as a way in which local people can take over community assets.
Stuart Fitzgerald, UK vice-president of LSSI, said: "It's not impossible to imagine a mixed market economy for libraries that will raise overall standards and encourage further competition."
Roberta Stevens, president of the American Library Association, said that private-sector firms "cannot guarantee the same level of transparency. Local authorities have to be absolutely clear on the terms of contract when entering into these deals. British taxpayers risk losing their own tax pounds to American firms."
On the day of Mr Cameron's big relaunch, it also emerged that:
* The £200m Big Society Bank will lend money, rather than give grants to charities and other groups aiming to run projects, and will have to get a return on its loans to cover its costs.
* The Bank will not lend directly to social enterprises but act as a wholesaler, lending to operations that decide on direct investments.
* Private firms Serco, Sodexo and Mitie have been chosen as preferred bidders to run the Community Payback scheme for offenders, currently run by probation staff, with no voluntary groups making the shortlist.
* Only two voluntary bodies are among 35 groups to qualify to bid for welfare-to-work contracts worth an estimated £2bn.
* Only 8 per cent of Conservative and Liberal Democrat MPs say they do voluntary work, according to a survey by the www.the-big-society.co.uk website.
Critics were quick to point up possible flaws in Mr Cameron's big idea. Geoff Mulgan, chief executive of the Young Foundation, said: "Many in the sector fear that the Big Society Bank's funds will be directed only to low-risk established ventures, and steer clear of genuine innovation.
"Some of the biggest impact ventures will lose money in their first few years, but the Big Society Bank shouldn't be frightened to back them because the long-term reward will be far higher."
Sir Stephen Bubb, chief executive of the Association of Chief Executives of Voluntary Organisations, told Mr Cameron his pet project could be undermined by local authority cuts to charities: "I think you need to think about how you say to local councils the cuts they are making are disproportionate, they are hurting disadvantaged communities."
Mr Cameron criticised councils for cutting libraries rather than bureaucracy, saying most would only see their budgets reduced to 2007 levels. Insisting the Big Society was "not a cover" for cuts, he said: "We have to make these cuts, we have to put up these taxes... People believe that we need a social recovery as well as an economic recovery."
The big society explained
'Devolving power to local communities'
What does it mean? Councils to be given power to decide where they spend money, with no "ring-fencing" of funds. Voters can demand local referendums. Commun- ities will be able to overrule planning decisions.
Is anything happening yet? The cornerstone of the policy is the Localism Bill which is currently going through Parliament. Already the number of "ring fenced" areas of funding has been dramatically scaled back.
'Reforming public services'
What does it mean? Councils and government departments will be able to outsource services from libraries to "free schools". Providers could be private companies making a profit such as Serco, or social enterprises set up by groups of individuals. Michael Gove's free schools fall into this category.
Is anything happening yet? Some councils have announced plans "contract out" services. Suffolk wants to become a "virtual" council and provide no services directly at all. Critics fear that private companies will only be able to make a profit by cutting back on existing services.
'Supporting social action'
What does it mean? Ministers want to provide money and support to local groups with ideas to improve their community. The Big Society bank will be financed by an estimated £400m from dormant accounts and £200m given by the UK's largest banks. Charities and local groups will be able to apply for funds.
Is anything happening yet? Pilot schemes have been launched in Cumbria, Sutton, Windsor and Maidenhead, and Liverpool. But Liverpool has already pulled out of the programme, saying that they cannot afford to take part because of the Government's cuts.