The powers are aimed at answering Conservative charges that Labour's plans would lead to an uncontrolled explosion in local government spending.
A consultative document, Renewing democracy, rebuilding communities, suggests councils should draw up an annual community plan that would set performance targets for achievements and costs.
It could be monitored by a Standards Inspectorate and run by the Audit Commission.
The commission could have a new duty to investigate councils with the lowest level of service or highest council tax, and could intervene after public complaints, an auditor's report, or a recommendation from the Ombudsman.
It could then require the council to implement improvements, with ministers having reserve powers to put the service or its management out to tender where that failed.
In some key areas - nutritional requirements for school meals, for example - national standards would be set.
The proposals are firmly consultative, but while providing councils with a much freer financial framework, the document says central government would need fall-back powers to protect business and council tax payers "in extreme circumstances".
Frank Dobson, Labour's local government spokesman, said the package was designed to obtain "the very best quality service and value for money".Reuse content