Charles Kennedy has called for a "fundamental" overhaul of the way Whitehall is run.

In a keynote speech the Liberal Democrat leader told the Social Market Foundation that the party wants to see a radical restructuring of government departments.

He challenged the "command and control" approach of Whitehall and claimed his political rivals had rendered local government impotent.

"Both Labour and the Conservatives have increased the powers of Whitehall. Neither have trusted local government with real power and responsibility. Both have interfered more and more in local decision-making," he said.

Kennedy called for the Department for Culture, Media and Sport to be abolished and for reform of DEFRA.

In a bid to draw a clear distinction between his party and its main political rivals ahead of the next general election, Kennedy also revealed how he will fund his policy pledges.

Kennedy called for a reduction of central government, with resources redirected to the sharp end of the public services.

As part of the cull, he called for a massive overhaul of central government including a massive cut in the number of ministerial posts.

He compared Tony Blair's modern Cabinet with 21 ministers against William Gladstone's main team of 14 ministers.

"It raises a question. If it was possible to make do with a much smaller Cabinet when Britain ruled a third of the world, do we really need a Cabinet of 21 to run the United Kingdom on its own? Particularly when Scotland and Wales now have their own devolved legislatures."

He claimed that Labour is still obsessed with being the party of big government and that the Conservatives have kept to an agenda of massive spending cuts that will hit public services.

"Most people can't afford the Tory alternative of opting out of public services. And public services are often most stretched where they are most needed - in our most deprived communities.

"Our education, health, police and transport continue to fail the British people, and those on the lowest incomes are the greatest victims of this failure," Kennedy told the audience.

The Liberal Democrat leader repeated his pledge to increase income tax by a penny on the basic rate to pay for key policy initiatives.

But better targeting of government cash was also vital, Kennedy argued.

"The money's simply being badly spent. If we want to spend well, we must spend wisely. The man in the ministry does not know best.

"What's the point in ring fencing money for schools to capital projects like refurbishing staff rooms when the real need for an individual school might be more staff or better IT equipment?" he argued.

At the next election the party would be pushing for frontline staff such as teachers and doctors to be given the right to set their own spending priorities.

However a civil service union, the FDA, said it was sceptical about suggestions that the number of government departments could be cut to provide more money for frontline public services.

"This is not a new approach from opposition parties, but once in government the complexities of running public services becomes rather more apparent," said FDA general secretary Jonathan Baume.

"The challenge for the Liberal Democrats will be to explain exactly what functions they propose to abolish to make these savings.

"It is a fact that the overwhelming majority of civil servants are already based locally - delivering services to communities in job centres and tax offices, for example.

"It is only a small minority of civil servants who work in the 'Whitehall' that these cuts are meant to come from."