North-East fire services could be merged into a single organisation, under Labour's plans to slash £500m from local government spending

And areas with both county and district councils – including North Yorkshire – will be urged to switch to unitary status, after the move saved £28m a year in Northumberland.

Last night, Tory-run North Yorkshire said it would happy to discuss ending two-tier status, arguing it could improve services and end “confusion”.

Meanwhile, the controversial New Homes Bonus – widely criticised for quietly shifting tens of millions of pounds from North councils to richer ones in the South – will be scrapped.

The proposals were unveiled as Labour promised a “tough but balanced” approach to removing the remaining £91bn Budget deficit, with year-on-year cuts in most areas.

In an important speech, Ed Miliband refused to identify any further big-ticket cuts he would make, saying: “The right way to make these decisions is, frankly, in Government”.

But he did release proposals to make £500m-plus annual savings at the department for communities and local government, which has taken the steepest cuts under the Coalition.

They include:

* Further sharing of services by local councils and “organisational change” – the creation of unitary authorities – where there is support.

* Replacing the “regressive and ineffective” New Homes Bonus, which rewards the building or larger homes – mainly in the South – with fairer funding.

* Merging many of England’s 46 fire and rescue authorities, saving up to £84m a year.

* Ending the requirement for smaller councils to ‘outsource’ projects, rather than collaborate with others, saving £100m.

On fire services, Labour floats the precedents in Wales, which replaced its eight fire services with three, and in Scotland – which merged eight into a single service, last year.

That points to a single body for the entire North-East, where there are currently three – for Cleveland, Durham and Darlington and Northumberland.

Similarly, in Yorkshire, there are four services – for North, West, South and Humberside – which could also be merged into one.

The report says radical change is essential to “maintain a safe, professional service” after fire and rescue services lost £236m – or 22.5 per cent of their funding – since 2010.

And it points out: “The estimated savings of moving to a single fire and rescue service will deliver cumulative efficiency savings of £293m over fifteen years in Scotland.”

It also suggests sharing management structures with police forces, arguing: “The case for collaboration is now surely overwhelming.”

On unitary councils, the report attacks the Coalition for “resisting local authorities’ voluntary proposals to reorganise from the bottom-up”.

Councillor Carl Les, North Yorkshire’s deputy leader, said: “We would be up for that conversation, but it would have to be done in co-operation with the district councils.”