By Daniel Hunter

An ambitious devolution of powers to local areas in next week's Budget could cut youth unemployment by 20 per cent, deliver 60,000 new homes and significantly increase councils' capacity to promote national economic recovery, town hall leaders have said.

Ahead of the Budget, council leaders have produced a four-point offer to Government listing the ways in which they can help deliver economic recovery that do not require the Chancellor to find new money.

Local government has been handed some of the deepest cuts in the public sector, with the grant from central government being cut by 33 per cent across the current spending period. This is having a significant impact on valued local services and council leaders warn that additional cuts in the next spending review will endanger some of the most popular services councils provide and further restrict the role local government can play in delivering economic growth.

The Local Government Association (LGA) is calling on the Chancellor to adopt the following policies:

- Lift the Government-imposed housing borrowing cap which restricts councils' ability to build new homes. This would create up to 60,000 new homes and could deliver a 0.6 per cent boost to GDP.

- Devolve responsibility for skills and training to local areas. This could cut youth unemployment by 20 per cent and save up to £1.25 billion a year. This is because programmes led by local areas are much better at matching training with existing job vacancies.

- Roll out ‘City Deals' to all areas that want one. This would produce new jobs and economic growth. The eight areas that have already been awarded a City Deal predict the creation of 175,000 additional jobs over the next 20 years, as well as 37,000 new apprenticeships.

- Adopt Lord Heseltine's single pot funding model. Local areas are better than Whitehall departments at targeting support and investment where it will produce results. The Chancellor should announce the pooling of funding across Whitehall departments and allocate it for local areas to use delivering growth-related projects.

"The Chancellor can get better value from existing budgets if he undertakes an ambitious devolution of powers to local areas," LGA Chairman Sir Merrick Cockell said.

"The measures we propose could cut youth unemployment by 20 per cent, deliver up to 60,000 new homes and offer businesses much more effective support than can be provided from Whitehall. The end result is more growth and a swifter economic recovery.

"The sluggish economy and the Chancellor's deficit reduction plans mean the prospect of new money in this Budget is low. That means the onus is on him to make sure the available money is spent effectively. Local government can help him wring more value out of every pound."

The LGA is also calling on George Osborne to use the Budget to set the groundwork for the up-coming spending review, which should include a money-saving redesign of public services and the creation of a sustainable funding model for local government.

Council leaders warn that asking local government to bear the brunt of cuts in the next spending review would represent a false economy, storing up long-term costs in health, education, justice and welfare.

As a result the Spending Review should aim to:

- Implement a policy of public sector transformation based on the idea of pooling funding across public agencies and allowing local areas to design services around the needs of users. This helps the elderly stay independent longer, improves job opportunities for the young, tackles criminal reoffending and makes sure more children are ready for school from an early age. It would also save taxpayers up to £4 billion each year.

- Reduce long-term costs by targeting money at early intervention in health and education. This should involve at least maintaining and possibly increasing the NHS investment in social care in the next spending period, as well as setting out how schools and councils can jointly use the Dedicated Schools Grant to support early intervention and improve education.

"We believe the spending review offers a clear choice between making cuts which store up costs for the future or reforming the public sector in a way which delivers significant, lasting savings. One of the Chancellor's top priorities must be a money-saving redesign of public services and the creation of a sustainable funding model for local services," Sir Merrick said.

"Early intervention on health and education saves money in the long term. We need to open the discussion on whether some of the money in NHS and schools budgets can be put to more effective use keeping people out of hospitals and ensuring children are ready for school. We think trying to tackle problems before they emerge makes sense.

"Local government has been handed some of the deepest cuts in the public sector. Councils have responded by driving efficiencies in order to reduce the impact on services. Despite this effort, the scale of the savings required means spending in some vital areas has had to be scaled back. These efficiencies cannot be repeated and new cuts would have a devastating impact on local services and councils ability to contribute to economic growth."

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