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By Kerry Lorimer, finance editor ...
By Kerry Lorimer, finance editor

The efficiency review is emerging as the unlikeliest new weapon in local government's arsenal - and chief executives are at the centre of lobbying to make the most of it.

Councils have long argued the public policy case for a more integrated and risk-based inspection regime, and greater freedom in deciding how to spend the money that flows down to them in the multitude of tightly regulated funding streams.

There is also long-standing frustration over the inability of government offices in the regions to speak for Whitehall as a whole.

But the case for reform of all three has been given a timely and powerful fillip in the shape of the efficiency review, led by Office of Government Commerce chief executive Sir Peter Gershon, which identifies potential savings across the public sector.

A little-known chapter of the review entitled 'Policy, funding and regulation' has triggered a series of discussions between council chief executives and senior civil servants in the Treasury and ODPM over the efficiency savings that could be generated from loosening some of the existing restraints on local government.

In terms of high level buy-in, the reforms appear to be pulling the right levers. Prime minister Tony Blair is said to have responded well when the ideas were floated at a meeting at Number 10 between Mr Blair and council chief executives. They have also won support within the Treasury and Home Office. Unsurprisingly, the most positive reaction has come from the ODPM, with both permanent secretary Mavis McDonald and Neil Kinghan, director general for local and regional government, having expressed support.

'There is no doubt that the policy, funding and regulation chapter has hit the right buttons in Whitehall,' said one senior local government source.

'It's a win-win situation. The government gets huge savings in expenditure and a joined-up body of people, and organisations at a local level dedicated to delivering national and local targets. That's an incredible offer.

'It is one of the most exciting constitutional changes to have come for quite a long time. It's real devolution. And the intellectual argument is being won hands down.'

Central to the reforms would be the establishment of local area agreements, under which councils agree to deliver national priorities as well as local targets.

In comparison to existing local public service agreements, local area agreements would tie funding to outcomes, allowing the government to retain some 'top down' control. However, at a local level, money could be moved between funding programmes and joint working could be co-ordinated more effectively.

These agreements would be drawn up by public service boards - based on work done by the Innovation Forum on 'local strategic partnerships with teeth'. A slimmed down version of LSPs, the boards are designed to have real decision-making clout, and conceived of as being led by councils. If these were to draw up local area agreements, councils would have a leading role in brokering the deal between central government and local partners.

Bob Kerslake, chief executive of Sheffield City Council and one of the officers involved in the talks, says there is increasing interest in the local area agreement model as a means of streamlining the funding process and giving councils greater freedom to tackle local problems in the most appropriate way.

'The Treasury and ODPM had indicated a willingness to at least consider the ideas being put forward,' he says.

'We've had a reasonable response.They're open minded if not necessarily entirely signed up.'

Tim Byles, chief executive of Norfolk CC, says the case for reducing the number of funding streams and tying them more closely to outcomes has been made 'very strongly' to government.

'The savings that could be generated are very considerable, which would be of interest to anyone whose business it is to get the maximum amount of resources into front-line services,' he says.

Local area agreements would be the ke y to joining up distinct programmes in order to produce something meaningful at a local level, says Mr Byles.

But he warns that the regional government offices should only be given additional intermediary powers where there was added value to be gained from doing so.

The next step will be for draft local area agreements to be drawn up and work to begin on a pilot basis. This is likely to involve a small group of excellent councils that have proven corporate capacity and the necessary leadership skills to bring partners together.

All eyes will now be on chancellor Gordon Brown, who could use this summer's spending review to give a public blessing to the principles of the policy, funding and regulation work.

If he does, the efficiency review and its unexpected silver lining is sure to become the focus of even greater interest within local government.

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