The third report by the Nolan Committee, which was set up in the wake of the cash-for-questions scandal three years ago, recommends a complete reform of the way that councillors are disciplined.
Surcharge, which under current legislation is applied to councillors rather than ministers, MPs and quango board members, would be replaced by a new disciplinary procedure. While minor offences would be dealt with a new council Standards Committee, more serious offences would go to the criminal courts, to be dealt with under the new offence of "misuse of public office". Lord Nolan said "they could face a jail sentence".
The recommendations echo suggestions by the Home Secretary, Jack Straw, announced last month, for an offence of corruption for both public and private sectors with a maximum seven-year jail sentence.
The Nolan recommendations were seized on by both sides in the Westminster council gerrymandering scandal in which former Tory council leader Dame Shirley Porter and five officers and councillors face a surcharge of pounds 31m.
Lord Nolan's criticism of surcharge, which he says is "outdated" was welcomed by Lady Porter who argues that the case against them should be dropped. She said: "The changes proposed by Lord Nolan vindicate our belief that Westminster councillors and officers were found to be at fault by a deeply flawed and unjust system."
However, three of the complainants in the case who are now Labour MPs welcomed the report. One of them, Peter Bradley, said: "It has always been my view that unlawful misconduct should be a criminal offence with all the penalties which that implies."
Lord Nolan also said that following the Downey report into the cash-for- questions case, he would have to return to his first report which dealt with Parliament to consider the issue of punishment. All the five men involved had lost their seats which meant they could not be expelled from Parliament.
Lord Nolan was at pains to stress that, while there were cases of corruption, most councillors and local government workers were honest. He said: "The vast majority of councillors and officers observe high standards of conduct." Asked about this, he said the committee had sought advice from the police, auditors and local newspapers.
However, Lord Nolan appeared not to have heard of the scandal that has engulfed Doncaster council and mentioned that in taking evidence for the committee he had only heard two allegations - one concerning "brown paper envelopes in a Scottish council" and another in which "English authority planning officers were moved regularly" in order to avoid allegations that they became too close to developers.
Lord Nolan's 39 recommendations include the creation by each council of a new code of conduct for councillors; the creation of a new Local Government Tribunal to ensure that district auditors are no longer prosecutor, judge and jury in misconduct cases; and better rules to protect whistleblowers.