Local authorities are ill-prepared to cope with the demands of an ageing population and must look to telecare as one of a raft of measures to help them tackle those challenges, according to the Audit Commission.

The watchdog’s local government report, Under Pressure, concluded that councils will struggle to cope with the financial challenge posed by England’s ageing population and that they may miss opportunities to innovate and save without a change in strategy.

The focus on delivering more care at home has also been backed by health secretary Andy Burnham, who this week said the time was right for a “decisive shift” in providing more care in a patient’s community and home.

He backed moves to enable more home dialysis and to give patients with cancer the option to have chemotherapy at or closer to home.

The Audit Commission report highlights telecare as one early intervention that can improve wellbeing and save money.

Its says North Yorkshire County Council has saved £1m a year on residential care by providing telecare services.

In Essex, the county council has pledged to offer a free telecare service for 12 months to everyone aged over 80. It estimates that it could save £2m in one year if only 2% of those using telecare are able to stay in their own home.

Michael O’Higgins, chairman of the Audit Commission, said older people did not want to become dependant but councils needed to help them help themselves.

He added: “There are huge financial pressures on councils in the years ahead but redesigning services and exploiting technology can make them better more efficient and more personal. “

The Audit Commission report said transformational activities such as developing telecare for older people are “usually left to service or area projects, rather than being part of wider council strategies.”

The report said local authorities already need to make billions of pounds of extra savings by 2013-14 because of inevitable cuts in public spending, but warned that costs could also increase as the number of older people increases each year.

The watchdog said councils currently spend £9 billion a year on services for older people and that while in 1982 50% of people were over the age of 50, in 2009 it was 34% and by 2026 it is predicted to rise to 40%.

The Audit Commission also recommended that local authorities should involve older people in developing services and work with the NHS and voluntary bodies on area-wide approaches that integrate prevention, early intervention and care services.

The Department of Health said the Audit Commission report showed that older people who have the opportunity to be looked after in their own home if they want to are happier and there are less costs to the taxpayer.

The health secretary added: “Evidence shows that we can now do far more out of hospital and the NHS needs to move confidently in this direction. Fears about changing services should not stand in the way of improving services for patients.”