Alan Rusbridger, the Guardian’s editor in chief, tonight threw his support behind a plan to give public funding to Britain’s national press agency to allow it to provide news from public authorities and courts as local newspapers withdraw because they can no longer afford it.

Rusbridger, speaking at a seminar on the future of journalism at the Media Standards Trust in London, also outlined his vision for a new digital world in which the public grows much closer to journalists.

Speaking in front of guests including film director Lord Puttnam, BBC business editor Robert Peston and Ofcom chief executive Ed Richards, Rusbridger said local news needed to be supported, or “corruption and inefficiency” would grow as scrutiny lessened.

He said the Press Association, in which most of the big British media firms including the Guardian Media Group are shareholders, should be the recipient of public money to provide local news as other providers such as newspapers and ITV regional news disappear.

In return, PA would contract out the reporting of public authorities and courts to local papers, with the content then shared with other outlets.

PA is currently looking for funding to trial the idea.

Rusbridger said the gradual disappearance of local journalism worried him.

“This bit of journalism is going to have to be done by somebody,” Rusbridger said. “It makes me worry about all of those public authorities and courts which will in future operate without any kind of systematic public scrutiny. I don’t think our legislators have begun to wake up to this imminent problem as we face the collapse of the infrastructure of local news in the press and broadcasting.”

Rusbridger said local public service journalism was a “kind of utility” which was just as important as gas and water.

“We must face up to the fact that if there is no public subsidy, then some of this [public service] reporting will come to pass in this country,” he said.

“The need is there. It is going to be needed pretty quickly.”

Rusbridger also laid out his vision of what he called “mutualised news,” which he said would “take down the walls” of traditional media companies by distributing information through new means such as social networking site Twitter and by asking the public to get involved through experiments such as “crowd sourcing”, used by the Guardian to help with its investigation into the death of Ian Tomlinson at the G20 protests.

“It was a piece of conventional reporting and tapping into the resources of a crowd,” he said. “There are thousands of reporters in any crowd nowadays. There was nothing to stop people from publishing those pictures but it needed the apparatus of a mainstream news organisation for that to cut through and have impact.”

He added: “What I like about idea of mutualised news is it gets over the concept of us versus them. It is us and them. It blurs the line between journalists and reader. It is much more diverse and plural than a conventional newspaper. It gives us a huge extensive resource.”

Rusbridger denied it would be the end of conventional journalism, saying that trained journalists and the public could work together, adding it was “futile” to deny that “something interesting and exciting is going on here.”

“There are many things that mainstream media do which in collaboration with others is still really important. The ability to take a large audience and amplify things and to give more weight to what would [otherwise] be fragments. Somebody has to have the job of pulling it all together.”

Rusbridger admitted that he had originally dismissed Twitter as “silly” but now saw its huge benefits for media companies in building communities and distributing news. “When Twitter started, I confess, I didn’t get it. Sometimes you are too old to keep up with all these things and Twitter just seemed silly and I didn’t have time to add it to all of these other things, but that was completely wrong.”