Liverpool City Council has announced that it has withdrawn from David Cameron's Big Society. In one sense, the Coalition should be pleased. At least Liverpool councillors seem to know what the Big Society is, which is more than can be said for much of the rest of the population. This nebulous slogan has been applied to almost everything the Government has done, from online crime maps, to school reforms, to putting state-owned forests up for sale.

Yet it would be wrong to dismiss, as some have, the Big Society as a smokescreen for spending cuts and the privatisation of local services. At the heart of the Big Society there is a perfectly respectable and progressive idea: to encourage civic engagement. It makes sense to allow and encourage charities and volunteer groups to run local services such as parks, post offices and libraries.

Labour and the Liberal Democrats have promoted similar ideas in the past under different names, ranging from mutualism, to "double devolution", to "neighbourliness". For the Tories, the Big Society was a repudiation of Thatcherite ideas about society, a recognition that we are not merely atomised families and individuals, but part of a community, and that such ties should be nurtured.

The problem is that the Coalition has rejected Thatcherite social ideas, at the same time as it has embraced Thatcherite economic prescriptions, in particular a reckless plan to eliminate the structural deficit over the course of a single parliament. Explaining his decision this week, the leader of Liverpool City Council, Joe Anderson, said that severe cuts to the local government grant threaten the future of a large number of local volunteer groups that rely on council money as one of their main sources of income. Liverpool is facing an 8.9 per cent cut in spending by 2011-12.

Mr Anderson's move has been dismissed by the immigration minister, Damian Green, as a "political gesture". It is true that Mr Anderson is a Labour councillor. But his point about the impact of council cuts reflects a widespread concern among voluntary organisations. The sector has been warning for some time that thousands of groups could go bust as a result spending reductions. Ministers argue that money is not everything and point to the financial waste that takes place in local authorities. That may be the case. Simply pumping more money into local services does not guarantee that they will be of high quality. But it is wrong to draw the conclusion that money does not matter.

Time is important too. This week the Prime Minister's Big Society adviser, Lord Wei, announced that he will reduce the amount of days he spends each week working on the project so he can earn more money in the private sector. Given that the post is unpaid, it is an understandable decision. But it underlines how unrealistic it is for the Government to expect unpaid and unfunded voluntary groups to fill the gap that will be left by the withdrawal of state-funded local services.

The Government seems to think that the Big Society can be built overnight, and that all it needs to do for the construction to begin is to cut back the state. The Big Society, voluntarism, civic engagement – or whatever one wants to call it – needs to work in conjunction with an empowering state. It cannot be a replacement.