By Daniel Hunter

More than £4 billion of public money could be saved every year by radically shaking up the way public services are provided and paid for in England, council leaders have said.

Independent analysis published today by the Local Government Association (LGA) has revealed the scale of savings that could be made by cutting the unnecessary waste, duplication and red tape which come as a result of too much centralised interference.

The results of a year-long pilot of community budgets, modelled to a national level by Ernst & Young, show that devolving more decisions to local areas would provide better services and save between £9.4 billion and £20.6 billion over five years across local and central government.

Community budgets work by bringing together public sector money and resources in local areas to give authorities like councils, the police and health service the freedom to integrate their work and design services around the needs of people who use them.

It marks a fundamental shift away from the traditional public sector method of funding services organisation by organisation and government department by government department.

Councils are proposing a unique opportunity for central and local government to save £4 billion a year by working together to fundamentally reform how the public sector provides services. Reforms on such a scale would require upfront investment and it would take several years for the full extent of savings to materialise.

Councils, which have already led the way at reducing costs and stripping out inefficiencies, are calling on Government to fully embrace the potential of community budgets. This would mean:

- enabling local changes to NHS funding formulas, giving local areas more choice on the skills-related training courses they fund and removing red tape barriers to joint working between organisations.

- all relevant central government departments committing to devolving budgets and decisions down to local areas.

Ernst & Young estimate that councils would make a fifth of the potential savings, the remaining 80 per cent would be saved by central government departments and agencies.

The LGA has previously warned that councils — which have borne the brunt of the Government's spending cuts — will be unable to sustain a further squeeze to their budgets without fundamental reform of the way services are delivered and paid for.

Savings made through community budgets would also help the police, NHS and other services cope with cuts.

"Shaping public services around the people who use them rather than the organisations which provide them makes better sense for everyone. It means people get better, more joined-up services and taxpayers get better value for money," LGA Chairman Sir Merrick Cockell said.

"The results of these community budget pilots show the potential savings which can be made are huge. Even if we only achieved half of the potential savings, this would still be substantial and will help meet the savings targets both central and local government have been set.

"The scale of the funding shortfall faced by councils means that it is going to take more than simply tinkering around the edges to preserve services like road maintenance, libraries and care for the vulnerable on which people rely.

"Government now has a unique opportunity to press ahead with a practical and tested reform of the public sector which would save billions while actually improving public services.

"But for this to work, it's going to take a fundamental change in outlook, both from Whitehall and local government, and an overhaul of the relationship between the two.

"Councils are prepared to change the way they work with central government. We need Government to wholeheartedly commit to community budgets by devolving powers and giving local areas greater control.

"Community budgets offer a great example of local public services taking the lead and joining together. This approach is not an easy way out and its success will be dependent on the different deals struck in different places. Government is cutting expenditure and we are offering it a way to help achieve this while improving public services for the people who use them."

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