The Government has been urged to divert £1.3bn a year into a transformation fund to help the shift towards a new prevention-focused health and social care system.

A report by Ernst & Young, commissioned by the Local Government Association (LGA), said this would allow £5.2bn to be invested in preventative measures over the next five years.

The transformation fund 'should focus on preventative measures and aim to prevent complex and long-term conditions, which can cost the system almost £88bn each year – a cost that is growing with the ageing population', it said.

The longer term aim would be to pool all health and social care funding, said the report, and create a system 'which focuses on keeping people healthy and out of hospital, rather than putting the majority of money into providing care for serious conditions'. It added: 'Local authorities and health partners recognise that social care must be properly funded to enable councils to alleviate pressure on health services.'

The report highlighted how simple preventative measures can make a significant difference. Spending £1 on local friendship networks can save almost four times that amount on mental health services, it said.

Cllr Izzi Seccombe, chairman of the LGA's community wellbeing board, said: 'This report supports what councils leaders have long been warning, that we need an urgent and radical change to the way in which we provide care for the elderly and disabled.

'We need to think now about how we help people to stay healthy, rather than pick up the pieces when it is too late. This is not fair on people who deserve the best and most dignified care and it is putting an additional pressure on a system caring for a growing number of people with complex needs and which is already buckling under the strain.

'It is social care services which keep people out of hospital and living in the community for longer. Social care and health are two sides of the same coin – it is quite clear that without adequate funding, social care simply cannot alleviate the pressure on the NHS. No one wants to see their elderly or disabled relative stuck in hospital when they could be at home – but sadly this is something we still see too often.

'The LGA has long argued for a bigger and longer Better Care Fund, with a transformation fund, so that more money can be put into prevention rather than continual crisis management and to make the system more sustainable. The Government needs to invest money in a system which will be there to look after people now and in the future, and commit to a long-term strategy to ensure that people get the care they need.'