Budget cuts totalling £ 137.5 million are to be pushed through by Birmingham City Council over the next three years.

The savings are needed to meet the Government's efficiency agenda, which requires local authorities to cut spending without harming services.

Departmental managers will hold a series of monthly brainstorming sessions chaired by the director of corporate finance, Brendon Arnold, who has been nominated Efficiency Champion.

The meetings will decide how to cut the council's £2 billion budget by about eight per cent by 2008/09.

Employees who come up with cost-cutting ideas will qualify for payment under an incentive scheme.

Most of the savings are expected to be found by trimming office costs - with an investigation under way into the possibility of combining payroll and business rate collection with the six West Midlands district councils.

The council's sprawling accommodation portfolio, with offices on several sites across Birmingham, is a key area for rationalisation.

The initiative, dubbed Delivering Efficiency and Effectiveness, should not hit services, council leaders insist.

A cabinet report notes: " Efficiency is about raising productivity, enhancing value for money or generating additional income. The efficiency agenda is about producing higher levels of output from inputs.

"There is an expectation that service users will not receive a lesser or lower standard of service as a result of an efficiency initiative.

"Rather, they should expect to see a similar or enhanced service after an efficiency initiative has been implemented."

The search for savings is being driven by the Gershon Review, which reported to the Government last year. All councils are under orders to cut costs by 2.5 per cent a year.

Sir Albert Bore, leader of the Labour opposition in Birmingham, accused the council's Conservative-Liberal Democrat coalition of lagging behind in facing up to the Gershon implications.

Sir Albert (Ladywood) said: "We have a torturous report to the cabinet, which is like wading through treacle to read. But it doesn't give any information about where these savings might come from. It is full of generalisations."

Deputy council leader Paul Tilsley does not underestimate the challenges ahead.

Coun Tilsley (Lib Dem Sheldon) said: "This is money that, on the face of it, can come out of back office costs. It means we have got to work far smarter if we are to achieve these sorts of savings.

"It is not going to be easy and it is a tremendous challenge for a city the size of Birmingham."

Coun Tilsley said the council-needed to use new technology more effectively in order to become more efficient.

He admitted the size of the £137.5 million target was causing concern among staff.

Earlier this month the council revealed plans to appoint a private sector consortium to help identify smarter ways of working. A ten-year contract could cost the authority £300 million.

Failure to find the savings would almost certainly result in Birmingham being ranked a failing local authority by the Audit Commission.