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Elected councillors must "do what they need to do" to serve the people, Kemi Badenoch said after she suggested Reform and the Tories could form alliances at a local level.
The Conservative leader said that while she doesn't actively support council coalitions, she is ultimately leaving the decision to local politicians "because they can't have a re-election if they don't have an outright majority".
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However, she said that at a national level "we're trying to rebuild trust with the public" and "suddenly saying that we're rushing to form a pact or merge with another party is not what I was elected to do".
Ms Badenoch was speaking during a local election visit to Lancashire after earlier comments about local coalitions were attacked by opposition parties.
She has consistently ruled out a pact at a national level with Reform UK, whose leader Nigel Farage has vowed to "destroy" the Tories.
But speaking to BBC Breakfast on Thursday, she suggested the picture could be different at a local level, saying: "I've seen Conservatives go into coalition with Labour, with Liberal Democrats, with Independents.
"What I'm telling local leaders across the country (is) they have to do what is right for the people in their local area and they must stick to Conservative principles."
Labour Party chairwoman Ellie Reeves said it is "crystal clear" that if you vote Reform or Conservative, "you're opening the door to more of the Tory chaos that held our country back over the past 14 years".
Liberal Democrats deputy leader Daisy Cooper said the two parties had "merged in all but name", adding: "You couldn't put a cigarette paper between Badenoch and Farage when it comes to their policies. It's clear the Conservatives have totally abandoned the centre ground."
Reform meanwhile snubbed the offer, saying they are "not interested in coalitions" and are focused on "taking the fight to Labour and the Conservatives".
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Ms Badenoch later insisted she is "'not supporting coalitions at a local level".
She told reporters: "I am leaving the decision to local leaders because they can't have a re-election if they don't have an outright majority.
"And it's right that they do what they need to do to serve the people of a community. These local elections are not opinion polls."
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The Tories face an uphill battle at the local elections on 1 May, with polling suggesting the party is yet to recover from its catastrophic general election defeat in July.
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Latest YouGov polling for Sky News' Sam and Anne's podcast put Labour marginally in the lead, followed by Reform and then the Tories.
The Lib Dems were fourth but their 17 points was the highest level of support they've had since 2017.
The Tories are defending more than half of the seats up for election, having won them in 2021 thanks in part to a Covid-19 vaccine polling bounce.
Votes will take place in 23 of England's 317 local authorities, and there will also be a by-election in Runcorn following the resignation of Labour's Mike Amesbury, who last month was given a suspended prison sentence for punching a man.
Senior Tory MP Esther McVey has previously said the Tories should "let Reform win" in Runcorn as part of an electoral pact, but Ms Badenoch today said: "That's absolutely the wrong thing."
She added: "We need to make sure that people always have the option to vote Conservative, and that's the message that I'm taking out for these local government elections on May 1."