The decline in local news coverage poses a threat to the long-term sustainability of democracy, a major government review on the future of British media has concluded.

Dame Frances Cairncross was appointed by the government last year to investigate ways to secure the future of high-quality journalism, amid the mass sell-off and closure of local newspapers hit hard by the shift to online-generated ad revenue.

Drawing parallels with the once-dominant businesses that failed to make the digital leap, such as Kodak and Blockbuster, she has recommended the establishment of an Institute for Public interest News.

Such a body could work in a similar way to the Arts Council, channelling public and private funding to “those parts of the industry it deemed most worthy of support”.

The review concluded that a lack of market interest in the public interest news, such as reporting on local courts and councils, “may mean government intervention may be the sole solution”, says Sky News.

“After facing the threat of quasi-state regulation from a parliament emboldened by the Leveson inquiry, we were sceptical about government involvement”, says The Daily Telegraph, but “the Cairncross review deserves a cautious welcome”.

The Society of Editors, which campaigns for media freedom, also welcomed the findings but warned of the dangers of government-imposed regulation of the media, reports HuffPost UK.

Cairncross, who worked as a Guardian reporter in the 1980s, also set out the blueprint for a new relationship between traditional publishers and technology giants such as Facebook and Google which have been the main beneficiaries of the shift to online ad revenue.

Adding yet another voice to the growing clamour for tech firms to be more tightly regulated, Cairncross called for online platforms to face greater scrutiny and accountability, especially to make sure their news content is trustworthy.

“Yet the report falls short of requiring Facebook, Google and other tech giants to pay for the news they distribute via their platforms,” says the BBC.

Speaking to the BBC’s media editor Amol Rajan, Cairncross said that “draconian and risky” measures could result in firms such as Google withdrawing their news services altogether.

“Several countries have considered a tax to fund journalism, particularly local journalism, and France imposed a levy on the tech giants from 1 January” says The Register. The news site says “the review, however, demurred” calling its recommendations “largely bland (but implementable)”.

“Ultimately, as this report acknowledges, when it comes to news, convenience is king. The speed, versatility and zero cost of so much news now means that, even if it is of poor quality, a generation of consumers has fallen out of the habit of paying for news,” says Rajan.

“But quality costs. If quality news has a future, consumers will have to pay. That's the main lesson of this report,” he added.