With the bunting barely down after the Football Association's 150th anniversary spectacular, a parliamentary report thumps on to its top table, calling on the FA to be a proper, upstanding governing body for its game in the 21st century. The MPs on the culture, media and sport select committee, who grappled for two years with the alpha males and governance deltas of football in its multi-billion pound modern incarnation, have finally reached a view of admirable clarity.

Their report contemplates the moral compass of a sport in which the mostly overseas-based owners of 20 Premier League clubs are awaiting £5bn for their next sale of television rights but have reduced the relative pittance provided to the Football Supporters Federation and Supporters Direct, who have represented fans with distinction in this political process. The MPs have looked in detail at a game so loved by so many, but widely felt to have misplaced its soul in the headlong hurtle for cash, and cut through to one overriding truth.

The FA, rightly celebrating its remarkable history and the excellent work it still does, from organising the FA Cup and the England team to organising the game for gleeful children, is football's governing body. Having listened to the game's decision-makers, and read the dire responses to its first report offered by the FA and leagues, the committee was left in no doubt: the FA is failing, not standing up to its historic role.

"We urge the authorities to be more radical and more urgent in addressing the problems faced by the game because of the weaknesses in its governance structure, at both FA and club level," the report said.

Their analysis is that the FA, chaired by David Bernstein, is not just weak in itself but weak because it has become dominated over the last 20 years by the Premier League, which has the vast bulk of football's money. In the FA and leagues' joint response, Bernstein volunteered to surrender any FA influence over central issues of concern, including ticket prices and even the distribution of money in the game. The MPs, chaired by the conservative, John Whittingdale, said they were "very disappointed" with the response and concluded: "It is inevitable that, under these proposals, the Premier League will retain its dominance over the Football Association."

This report's headline recommendation is simple and there is some sadness that it should even have to be articulated: "As the governing body of football in England the Football Association should take the lead in decision-making for the game."

That is the core function of the FA, and this process, which began in December 2010 when the select committee launched its inquiry, was a test of the FA's will to stand up for its independence. Bernstein, for all his dignity and decency as a chairman, flunked it, the committee's report concludes.

Even that basic definition of the FA's role, descended from first unifying the rules for football in 1863, was challenged by the Premier League. Richard Scudamore, the Premier League chief executive, in his evidence to the committee, argued that the FA is "an association of interests" rather than a governing body which, ultimately, should balance those different interests and rule independently for the common good.

Scudamore is devoted to the idea that the FA, and government, should interfere as little as possible with his clubs' freedom to run themselves as they see fit. However, one of the Premier League's current headaches illustrates the benefit a strong governing body would bring. Scudamore's clubs are arguing across the table at each other about financial fair play proposals aimed at helping them not to blow their new £5bn bonanza on players' wages. Across Europe Uefa, a governing body, not a league or autonomous club collective, introduced financial fair play rules – an act of leadership, even if it can be argued the clubs wrought key concessions which watered the original proposals down.

Here the FA is absolutely not involved and, as with the sale of our great clubs to overseas investors with varying motives, has not a single word to say about this huge challenge facing football. The clubs each have their own self-interested positions, one or two arguably maverick – Randy Lerner could be expected to agree with financial fair play, having spent millions unsuccessfully at Aston Villa, but is set against the idea. For a rule to be introduced 14 of this season's 20 clubs must agree; yet three of the clubs will be relegated and not even in the league when any rule comes into force.

A strong, modern FA could, having taken soundings from everybody, govern on this decision which ultimately concerns how the greatest fortune ever to arrive in the English game should be managed. Instead the issue is bouncing around the boardroom walls of only the Premier League.

Discussing the fact that the Premier League currently funds the supporters' organisations – an odd state of affairs, granted – the committee described Scudamore as "a somewhat reluctant sponsor of Supporters Direct and the FSF". In his evidence relating to Supporters Direct, which promotes democratic supporter ownership and involvement in clubs, Scudamore said this involves the league asking "20 owners to fund an organisation whose avowed intent in some cases is to remove the owners of the clubs that funded them in the first place".

If the FA and Bernstein could see it as more than a burden and find the mettle to grasp the challenge it sets out with such convincing simplicity, the select committee's report would have done football a service.

Sadly the sports minister, Hugh Robertson, who might have embraced the report and promised to legislate if the FA does not reform into an independent governing body, is hamstrung by having welcomed the football authorities' response last year. So, after previously calling outspokenly for reform of the game he dubbed "our worst governed sport", Robertson finds himself in the uncomfortable position of accepting a response with which the select committee is "very disappointed".

Thus, despite a clear and strong report, football's historic governing body can maintain its pledge to surrender in crucial areas, and the 20 clubs of the Premier League can, with Robertson's blessing, entrench their dominance of the game.

David Conn was asked to and did provide advice to the Parliamentary Select Committee for Culture, Media and Sport at the start of its inquiry into football governance