A Government taskforce advising councils how to protect frontline services while saving money is to be launched.
Reforms set out in the Pre-Budget Report called for "efficiency savings" to be made to help cut the budget deficit.
Gordon Brown promised £3 billion of additional efficiency savings, including a 20% cut in the cost of the senior civil service, and the taskforce will look at whether similar savings can be made by local government.
Communities Secretary John Denham said: "Woe betide the local authority which cuts frontline services when it hasn't made every possible efficiency savings.
"Local taxpayers should be vigilant if they are asked to accept reduced services because their council won't take tough decisions to introduce shared services, sharing senior staff with other local authorities, PCTs or other bidders, or through making the best use of public buildings.
Steve Bullock, mayor of Lewisham, and Richard Leese, leader of Manchester City Council, will lead the taskforce with representatives from local government and unions.
The taskforce will develop proposals to identify how council workforces can be made more efficient without affecting frontline services.
Mr Bullock said: "Local government has delivered significant efficiency savings while driving up performance but now faces a fresh challenge to deliver even more for our communities while making cost savings of a significantly different order.
"This will only be possible if we take a clear, unsentimental and above all speedy look at what we do, how we do it and how we might do it differently in the future."
Margaret Eaton, chairman of the Local Government Association, said: "Reducing administration and red tape could save £4.5 billion a year before local services are affected. There needs to be a bonfire of red tape so that taxpayers' money can be freed up to protect frontline services."
