Schools and community care should be run from Holyrood, taking £5bn out of council budgets, according to a blueprint drawn up by a prominent think tank.

The idea is particularly significant as it is contained in a report co-written by Jim Gallagher, a senior executive civil servant seconded from St Andrew's House.

The report, published by the David Hume Institute, was compiled at Glasgow University, where Professor Gallagher is working on policy research, independent of ministers.

The report seeks to move on the "middling, muddling way" that it says has afflicted local government for the past 30 years, when the UK-wide Layfield Review said councils should raise most of the money they spend, with less dependence on government grants. It also favoured a local income tax.

The new report, to be launched at a seminar today, says that government has since failed to resolve the tensions between central and local government. It agrees with the recent Birt Report on local finance that its relations have become "corrosive".

That problem has been made worse by councils being required to carry out much of the policy forced on it by MSPs. In addition to a block grant there are 63 specific revenue grants and 21 capital funding streams. Also, ministers retain the power to cap council tax and have imposed an "industry" of regulators and inspectors to ensure councils meet national standards.

Professor Gallagher, writing with economics professor Kenneth Gibb and housing expert Carl Mills, concludes there is little point in keeping schools and community care under council control when that control is so limited and when there are demands for all parts of the country to receive the same level of service.

The Glasgow team recommend the creation of boards of education and of community care. There could be around 15 of each, they could be locally-appointed while funded by central government in Edinburgh, and could operate in a similar way to health boards.

The role of councillors would then change to scrutinise the performance of education and health boards, ensuring they meet local needs. Councils, which next year have a total budget of £10bn, would lose more than half of that. Local taxation and business rates could raise nearly half of what would continue to be required for local services, including refuse collection, economic development, local roads and leisure.

Central government would redistribute some funds to ensure fairness to poorer areas. The report does not recommend a change to local taxation.