Unfair funding formulas mean some councils are missing out on vital cash while others receive double the amount they need, a powerful Commons committee has warned.
To prevent big spikes or dips in the money awarded to local authorities under the formula grant the Government prioritises stability over need, according to MPs.
That means one in five authorities receive funding that is more than 10% higher or lower than they should, they claim.
The Public Accounts Committee found that Wokingham in Berkshire received double the cash it should while other councils were awarded well below what they needed.
MPs also reported that basing education allocations on spending patterns dating back to the 1980s meant the money being awarded to similar schools can vary by as much as 40%.
The committee was examining the way three grants - the Primary Care Trust allocation, the dedicated schools grant and the formula grant - are allocated.
They fund health, education, local government, police and fire and rescue services and account for one-fifth - £152 billion - of all Government spending.
Some of the cash awarded is made on the basis of out of date information, including the 2001 Census, the report found.
All the formulas are under review, providing the "perfect opportunity to address the weaknesses", MPs said.
Margaret Hodge, who chairs the committee, said: "The current system for distributing central Government funding to local bodies is complex and difficult to understand, and too often results in local public bodies getting the wrong amount of money, which is not fair to local communities. It is essential that this money is distributed fairly, consistently and transparently - but we found that this is not always the case."