The government is slashing billions of pounds' worth of services that could be saved if it planned its cuts better, according to a report by a thinktank with close ties to senior Conservatives in the coalition.

The Centre for Social Justice (CSJ) says it has identified a dysfunction in Whitehall where cuts are being made on the basis of "hunches" instead of sound analysis of whether or not a programme is productive.

It suggests that far more efficiency savings could be found if the cuts were properly planned, but as it stands services could be sacrificed unnecessarily.

Civil servants have been given little or no incentives to save money or spend less than their targets, it claims.

The thinktank, which was set up by Iain Duncan Smith, the work and pensions secretary, will publish its report tomorrow.

Duncan Smith is still a patron, and was behind the design of the new benefit systems. The report says the problems in Whitehall are historic and have persisted under successive governments but they are even more crucial to solve as the axe falls on public spending.

The government is spending £1.2bn a year on tackling drug use, but is not measuring the effect of this spending, the report says. One job skills programme – costing £750 for a two-week course – was measured as successful if the person attended every day, not if they got a job.

A local authority chief gave evidence to the report's authors describing a family who were receiving help from 20 different services – from the benefits office to social services – but none were looking for solutions to the family's problems, only maintaining their situation.

Gavin Poole, the executive director of CSJ, said: "Taxpayers' money should tackle real problems and improve people's lives. Too often, there is limited evidence to show this is the case."

The report says: "For decades, spending programmes overseen by successive governments have lacked clear objectives and have been poorly managed and monitored. Ministers have concentrated too much on crude outputs – such as increasing police numbers – and not enough on outcomes – such as cutting crime."

That conclusion will be particularly controversial as the coalition government has scrapped Labour's outcome-based targets and introduced "business plans" for each department, setting out what ministers must ensure their departments do by when.

The £700bn the government spends every year is allocated based on "vague hopes" of improving people's lives, the report says, but not rigorous assessment of the outcomes of policies.

The government has asked Whitehall to shave £81bn from its spending, but it has not set out clear objectives, it says.

The report claims that:

• Policies are not based on sound, researched evidence, the government does not measure its productivity closely enough and further efficiency savings could be found if civil servants put the right measures in place.

• Political priorities warp the government's agenda, meaning ministers focus on the substance of an announcement – and the headlines that run with it – rather than the effect that policy ultimately achieves.

• The civil service is not encouraged to find savings, only to meet spending targets. This encourages a "use it or lose it" mentality to public funding, with no incentive for public sector managers to cut costs further.

"Budgetary negotiations were characterised by a 'fight your corner' mentality," the report says.

"Effective spending decisions require a fundamental change in the way we view public spending. This is a cultural and organisational challenge as much as a technical one.

"To do this will require an important shift across the civil service: to a culture that values transparency and accountability, and incentivises cost-effective delivery and cross-departmental working.

"All of this cannot happen overnight, but much can be achieved quickly – and it needs to, if we are to minimise the impact of public sector cuts on the quality of life in the UK.

"It requires a change to the way government operates, as well as some institutional changes."