The BBC is asking private companies to pay the salaries of reporters who will scrutinise local councils in another sign that there is currently no commercial business model that can support much of traditional regional journalism.

While the US has a culture of wealthy philanthropists funding not-for-profit public interest journalism, the UK has been slow to adopt a similar model. The BBC’s director general, Tony Hall, is now calling on private companies and civic-minded individuals to pay the salaries of reporters who will “hold those in power to account” by covering local government and institutions such as the NHS.

His plans are part of a major expansion of the Local Democracy Reporter scheme, through which the BBC pays the salaries of about 150 journalists across the UK who share their work with commercial news outlets. Under the proposal, unveiled earlier this year, the BBC would give responsibility for the scheme to a not-for-profit charity, which would be able to seek external funding.

But Hall said the ambitious expansion would only work if companies start providing hard cash and challenged them to cough up: “I want businesses and other institutions to join with us so we can get even more reporters into communities – and give people the local journalism they deserve.”

There are already plans to allow publications aimed at minority ethnic audiences to employ reporters through the scheme, on the basis that they provide news to underserved communities.

Google and Facebook, which together dominate the online advertising industry and take much of the revenue that previously flowed through other forms of media, already have their own schemes which respectively provide millions of pounds of grants to news outlets for innovation projects and cover the costs of some regional journalism jobs. Both companies expected to come under pressure to donate to the new scheme, which could have the added benefit of ensuring news outlets are not swayed in their coverage of the businesses.

The vast majority of local newspapers in the UK are owned by just three companies: Reach, JPI Media, and Newsquest. This could soon become just two, as Reach is in negotiations to buy the majority of the 200 titles owned by JPI Media – including the Yorkshire Post and the Scotsman – on the basis that competition regulators are unlikely to block any deal due to the news industry’s terrible finances.

Not all local news outlets are facing oblivion. Some newspapers based in major cities, such as the Manchester Evening News, have managed the transition to online publishing while retaining loyal audiences for their output. At the same time, new hyper-local outlets – often run by a single member of staff – have built loyal audiences by focusing closely on communities and making enough money to maintain the operation.

But mid-sized outlets serving smaller towns and cities have been particularly hard hit as they attempt to maintain reporting standards in the face of continued cuts, while still meeting the financial targets set by their corporate owners. This year Newsquest’s York Press laid off three experienced journalists who provided the newspaper’s sport and culture coverage, shortly before putting much of the site behind a paywall in the face of a dire online advertising market.

In February the government-commissioned Cairncross review of the local news industry concluded that the decline of local media posed a threat to the “long-term sustainability of democracy” and called for public funds to revive the industry.