Danny Alexander, chief secretary to the Treasury, is planning to save billions in the spending review by scaling up a successful initiative that tested out the savings that could be achieved from integrating public services in Manchester and parts of London and two other locations.
Only given a glancing reference in a paragraph in the budget red book, the proposal to extend community budgets referred to four pilot schemes that were on course to save £800m over five years, or £160m a year, mainly by reducing duplication in related public services.
Alexander is understood to believe the pilots – which also covered West Cheshire and Essex as well as Manchester and three west London boroughs – could unlock billions in savings in the next parliament, and may be able to make a contribution as early as the 2015-16 spending review.
Savings are due to come from greater integration of public services, mainly in the fields of families with complex needs; health and social care for adults; economic growth, work and skills; reducing reoffending and domestic abuse; and early years.
George Osborne announced he was looking for £11.5bn savings in 2015-16, a figure that is made harder to achieve by the need to focus the savings in a relatively small number of departments.
But research by Ernst & Young cited in government circles suggests nationwide savings from the community budgets "are available between £9.4bn and £20.6bn over five years across local and central government".
Greater Manchester, which covers 10 local authorities, has estimated net savings of £270m over five years, while in West Cheshire savings of £56m are estimated for the same period.
In a sign that the government is banking on these projects, local government minister Brandon Lewis will announce on Friday it is setting up a multi-agency network to drive forward the transformation of public services at a local level.
He will announce a small £9m fund to help councils demonstrate their ability to remain at the cutting edge of service transformation by learning from the pilots.
The Local Government Association, often cautious about government initiatives, said the proposals represents "a serious offer to government. Results from the whole place community budget pilots provide enough solid evidence for the case to be made that these should now be rolled out across the whole of the public sector."
As part of the pledge to transform public services, Lewis will also announce a £9m reward for councils that radically overhaul how they do business.
He is expected to say: "Every public service can be improved so it works better and costs less. Many places are already finding new and innovative ways to deliver top notch services fit for the 21st century. Stripping out duplication, targeting service dependency can save hundreds of millions of pounds of taxpayers money."
As part of its fiscal deficit reduction plan, the coalition announced in the 2010 spending review reduced funding of local authorities by 26% (£7.6bn) in real terms between April 2011 and March 2015 excluding police, schools and fire.
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