A new generation of super-councils across the country is being backed by Conservative ministers as a means to slash costs and drive up efficiency standards. A cull of smaller councils would inevitably lead to sweeping job losses.
The local government map of London would undergo its most radical transformation since the 1960s under plans drawn up by a Tory elections adviser.
The psephologist Rob Hayward, a former MP, called for the number of London boroughs to be almost halved in the hunt for savings.
Three Conservative-controlled councils in the capital – Westminster, Kensington & Chelsea and Hammersmith & Fulham – yesterday announced moves to share services, although they would retain their separate identities.
Ministers are urging other authorities across the country – which face a 28 per cent cut in Whitehall grants over the next four years – to follow their lead and pool resources.
The three councils said that the merger of their services – from chief executive and senior directors to street cleaners and social workers – would generate savings of up to £100m a year.
Under the plans, which will lead to hundreds of redundancies, each authority would keep its council leaders and local ward councillors. The new "super-council" could be bigger than Glasgow or Leeds, giving it the clout to drive down costs of supplies.
Mr Hayward said yesterday that the time had come for a dramatic overhaul of London's local government structure, which has remained virtually unchanged for 35 years.
Responsibility for running the capital is currently divided between 32 boroughs – 12 in inner London, 20 in outer London – as well as the City of London.
Mr Hayward said the number should be reduced to 18, with only four of the larger outer boroughs left intact. Under his blueprint, 25 authorities would be merged into 12, while two new councils would emerge from Barnet, Camden and Islington.
Mr Hayward said: "Not only would mergers reduce the cost to the taxpayer by getting rid of officials, but the number of councillors should go down by some 500 as well. It is not realistic to ask the staff of councils to take a hit and not see a commensurate reduction in the numbers of elected representatives."
He added that the current total of 1,861 borough councillors in London could, "with a bit of wit and imagination", be brought down to about 1,000. Even a reduction of 500 councillors would save between £10m and £15m from the public purse, he calculated.
In a joint statement, the leaders of the three London councils said: "Ensuring we can provide a high standard of local services in today's tough economic climate means thinking differently about how we operate, concentrating on what's important to the people we serve and ensuring we continue to care for the most vulnerable in our communities.
"To achieve this in the age of austerity, we need to seriously examine new ways of working including sharing service provision with other local authorities."
Eric Pickles, the Local Government Secretary, said: "This is exactly the sort of innovation that will help councils to protect hard-working families and the most vulnerable. By sharing back-office services, they'll be able to protect the frontline – and even improve the services on offer to residents. We're supporting these sorts of moves by giving unprecedented freedom and flexibility to councils to make their own choices, funding a council tax freeze, and calling time on the bureaucratic red tape and pointless form-filling that have hampered councils for so long."
But Labour claimed the three councils' move would "centralise decision-making in the hands of three Tory council leaders and a few unaccountable town hall officials".
The credit agency Experian said that authorities working together could save large sums from tackling fraud.