The UK economy could get an 80bn boost and raise productivity if powers and funding were devolved to local authorities to remove barriers holding back businesses.
The finding comes as a total of 34 devolution proposals, from cities, towns and counties in England were submitted to the government ahead of the spending review.
Bids, from areas such as Liverpool, the North East of England, Gloucestershire and the West Midlands, included calls for infrastructure and economic development powers to close widening economic gaps across the country.
According to the Local Government Association, London and the South East of England accounted for more of the UKs economic output than the North East of England, North West of England, Yorkshire and Humber, the South West of England and East of England combined in 2013.
The LGA said low-skilled workers, poor infrastructure and a lack of housing was stifling productivity across the country despite growth in the economy.
Compared to the average of the UKs ten largest cities, productivity per person is 88 per cent higher in Munich, 42 per cent higher in Rotterdam and 26 per cent higher in Barcelona, according to the Core Cities group.
The LGA said productivity would be lifted if the government matches the ambitions of communities by devolving, or handing greater local control over, at least 60bn of central government spending to local areas in the Spending Review.
This, it said, would allow local leaders to improve transport links and business support and close skills gaps all barriers currently holding local businesses, local growth and productivity back. It would also meet the governments aim for the Spending Review to prioritise promoting growth and productivity through the radical devolution of powers to local areas in England .
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It claimed that one in seven small businesses said the lack of reliable, fast broadband is the main barrier to growth but that councils could achieve 100 per cent broadband coverage with full control over future public funding of super-fast and mobile broadband rollout.
It said councils should also be given full control over bus and road maintenance funding to reduce congestion.
By 2022, the LGA estimated that eight million people could be without a job or in work they are over-qualified for plunging productivity by a fifth. It claimed that by localising all back-to-work and skills schemes, this would ensure a better supply to meet employers’ specific local skills needs.
In addition simplifying, localising and improving access to business advice, would help SMEs grow and benefit from expanding overseas economies.
Cllr Gary Porter, LGA chairman, said: Decades of centralised control over funding for local growth have failed to produce a more balanced economy. It is time to spend smarter on infrastructure to get maximum value from every public pound. This starts with a much more effective and efficient approach to investing in local growth.
“The ability to improve transport links and digital connectivity would allow councils to boost our visitor economy which is worth 60bn to the UK each year and supports one in ten jobs. An integrated transport system would also lead to less congestion, giving more choice to commuters and consumers and making a huge difference to helping businesses succeed and grow.
He added that devolving education and skills funding would also allow businesses to access a skilled workforce and avoid a growing skills gaps costing almost 500bn in lost growth and lost tax by 2022.
Local leaders know their local economies best and hold the key to removing the obstacles limiting the productivity of businesses and holding back local growth. We need the Spending Review to hand us the fairer funding and powers to unleash the full potential of local businesses and economies,” Porter said.