Labour considers 'new localism' as the big-banner policy for a third term

Communities should be allowed to run local hospitals, schools, colleges, libraries and even bus services under radical ideas sweeping the highest echelons of government. The jargon is "new localism", which is being looked at by Labour as a third-term option for the reform of public services.

Top-down command and control, an approach which dominated Labour's first term, would be replaced by handing back power to the individual or "stakeholder". As a measure of how seriously the arguments are being taken, Tony Blair hosted a launch party last night at Downing Street for a Fabian Society pamphlet espousing the benefits of localism.

The idea of giving mutual societies or community-interest companies the power to manage and own public services is being examined by the No 10 policy unit. Hazel Blears the Public Health minister and author of the Fabian pamphlet, says localism is the logical step forward from foundation hospital. She challenges the claim that services are "public" because they are delivered by the state, and suggests provision of local services should be removed from Whitehall's power.

"No longer can the provision of local services be determined by the sharp-elbowed bourgeoisie," she says.

"We need to be clear public ownership should mean exactly that: ownership by the public. I mean real, tangible ownership by local communities of significant sections of the public services. We must dust down and reinvent the co-operative model of ownership and learn from modern mutually owned enterprises."

Her theme was echoed yesterday by David Blunkett, the Home Secretary, who said he would like to see communities electing police boards and given a say in the way they are policed. Last month, Stephen Byers, the former trade secretary, who remains on good terms with No 10, said that in the "new localism, we must always have at the forefront of our thinking the part that can be played by local government".

The idea of passing control of local services to small non-profit community bodies, would strip the power of local government. Many ministers have been concerned about the efficiency of local authorities, particularly over the administration of housing benefit and local schools.

The shift of power is likely to be strongly resisted by councils. It would also conflict with the Labour Party's other big idea for running public services: public private partnerships. The idea of bringing in private companies is seen by some Labour figures as inimical to the idea of handing power to communities.

Michael Jacobs, general secretary of the Fabian Society, said: "The Government will have to work out how an emphasis on local ownership of services fits with another of its principles which is introducing more market-based incentives. At a time when arguments are still raging about the role of the private sector and markets in public services, it is interesting to see a government minister coming up with an alternative approach, which draws on long-standing centre-left principles of mutual and co-operative ownership."

Ms Blears said the notion of community-owned public services, floated last year by the Liberal Democrats draws "on the ideas of socialism which pre-date the Labour Party". She added: "This is a challenging agenda, because it means tackling the left's cherished belief that if a service is delivered by the state, it is owned by the public."