Responsibility for the welfare budget should be stripped from the Treasury and devolved to local authorities, says a leading advice charity.

The Citizens Advice Bureau (CAB) says local authorities are best placed to determine the level of support needed by local residents.

Councils would be allocated funding from central Government dependent upon local levels of unemployment, deprivation and population size. Powers would be granted to decide how to allocate the funding, similar to that for Discretionary Housing Payments (DHPs) and Council Tax reduction schemes.

Critics argue such a move would lead to a “postcode lottery”, with low-income households and benefit claimants receiving more cash support in some areas than others. This has been rejected by the CAB, who argue that councils would be allocating support and benefits based upon local needs.

The mere suggestion of devolving greater welfare powers to a regional level, which may include the ability to cut benefits, will be seen by some as gifting the Government with an offer to wash their hands of responsibility over the welfare state.

In a report due to be published this week, the CAB says it’s time to change the way Britain thinks about welfare and how it’s administered. The charity argues that welfare and social security is trapped in the 1970’s and riddled with bureaucracy.

According to the report, over-centralised bureaucracy is one of the main reasons for delays in the roll-out of Universal Credit.

The report uses an example to explain the CABs reasoning. Based upon the size of its working-age population and scale of local deprivation, Greater Manchester would be given £3.25bn by central Government. The local authority would have a legal responsibility to allocate the funding in such a way as to reduce local unemployment and support those most in need.

Government ministers are already looking at ways to devolve more powers to different regions of the UK, in the wake of the Scottish independence referendum.

The CAB’s proposals are likely to be welcomed by English councils calling on the UK government to allow them the right to manage their own affairs, as more welfare powers are set to be devolved to the Scottish Government.

A total of 119 councils across England signed a letter to the Independent newspaper in November 2014, warning that voters would not accept greater powers for Scotland unless similar powers were granted to local authorities in England.

Gillian Guy, the chief executive of Citizens Advice, said: “The Government is missing a trick by not looking at welfare from a local perspective.

“With billions spent each year through the benefit system, it’s important to consider how this money could work harder to tackle the different social and economic challenges around the country.

“In its pioneering work with Greater Manchester, the Government has already shown a welcome willingness to share some of the financial risk and reward around public expenditure.

“In the future we may look back at this example as the first step towards a broader and more whole-hearted localism.”