The ‘perfect storm’ for the UK public sector shows no sign of going away any time soon – spending on frontline services continues to plummet at the very moment demands on these public services continues to rocket - be it welfare support as a generation of school leavers join the dole queue, civil contingencies to protect communities increasingly exposed to weather extremes or infrastructure upgrades to wean the country off our dependency on foreign energy supplies with volatile prices that drive up the cost of living. So are there any ‘big ticket’ interventions the public sector can make to advance more sustainable development as we attempt to recover from the crisis?

Even during an age of austerity with unprecedented spending cuts, the economic footprint of the public sector is huge. Take for instance, local government, each year £42 billion is spent on external contracts alone, the value of local government pension funds last year was £143 billion, and it is estimated that local authorities have £250 billion worth of property.

But is tax-payers money well spent, for instance by simultaneously helping to tackle high levels of youth unemployment whilst delivering frontline public services? I would argue not always.

For starters, we need to re-direct the £143bn of local authority pension funds from investments in big overseas business to local job creation (especially if beneficiaries of this investment were the big banks that caused the global crisis in the first place). To do this, there is a need to make it much easier for local councils to access their own municipal pension funds for local regeneration schemes. To be clear this is not a loan, but rather a redirection of pension investments, so it won’t cost an extra penny. It is legal to do so already, yet this practice is uncommon due to regulatory red-tape and a lack of awareness and competency. We not only need UK government to make it clear that this is possible but that it is expected, and as such will be monitored.

Crucially, this money could be invested in a way that prevents a significant amount of GDP leaving an area and decarbonises the local economy too, whilst stimulating job creation amongst the youth unemployed at the same time.

A new study by the Centre for Low Carbon Futures shows that UK cities such as the Leeds city region (which has an economy worth £54 billion a year and an energy bill of £5.4 billion a year) could cut their costs by billions through exploiting commercially attractive opportunities in energy and carbon management. Increased energy efficiencies could be made in homes, public and commercial buildings, as well as to industry and transport, which would pay for themselves in commercial terms in just 4 years. The study concludes that by 2022 an area such as the Leeds city region, by investing 1% of GDP for 10 years, would typically lead to cuts in the energy bill worth 1.6% of GDP every year (and cut emissions based on 1990 levels by 35%). Crucially this would also create jobs, improve energy security and tackle fuel poverty. So for instance, for £1 billion spent on investment in low carbon options would generate £220 million of cost savings and create 1,000 new jobs and wider economic benefits of a further £50 million per year.

Leeds is not alone in striving to find innovative ways to make the transition to a greener and more prosperous economy whilst dealing with savage spending cuts. Local authorities up and down the country are also taking great strides in this regard, ranging from electric vehicle infrastructure in Newcastle to decentralised energy networks in Lambeth.

But the Government needs to more to provide more to help these local authorities achieve even more, beginning with unlocking the use of municipal pension funds. By recalibrating aspects of our current economic model in this way it both boosts local resilience and enhances our nation’s sustainability.

Philip Monaghan is founder & CEO of Infrangilis. He is a writer and strategist in the fields of economic development and environmental sustainability and the acclaimed author Sustainability in Austerity (2010). Philip’s new book How Local Resilience Creates Sustainable Societies published in February 2012 by Routledge and has won praise from respected commentators at the United Nations, Centre for Sustainable Urban and Regional Futures, Co-operatives UK and the Association for Public Service Excellence, amongst others.