Southwark is among the top 10 per cent of spenders on education and yet 12 of its schools have over the past five years been identified as failing to provide adequate education.
The report of the inspection by the Office for Standards in Education says standards in schools are too low and the local education authority's ability to prevent underperforming schools from going into further decline is weak.
The report says Southwark's services are costly and the proportion of the budget delegated to schools is low.
It says: "Overall, in relation to educational standards, the quality, effectiveness and efficiency of services and the response to the different needs of schools, the picture is one of considerable variability. There is evidence the local authority has not taken swift and decisive action to address that variability."
However, it acknowledges the education service has made significant progress since 1994 when the council organised its own review of services. Exam results at 16 are improving faster than the national average, but school test results for 11-year-olds are among the poorest in the country.
The report commends the authority for the support for teaching it provides in primary schools, its induction programme for new teachers and effective monitoring of bilingual pupils.
It concludes, however, that in such a deprived area, the performance of the education service is not good enough. "Parents, children and schools in Southwark need an education authority which performs not adequately, but consistently well," it says.
The borough has many postwar council estates, with significant unemployment and disadvantage. More than half of pupils in primary and secondary schools are eligible for free meals, well above the national average.
Over the past three years, the borough has funded its service at a higher level than the Government's standard spending indicator - more than 5 per cent above in the last year. Average spending per pupil is Pounds 1,995 for primary and Pounds 2,608 for secondary, slightly less than the inner London average. The education department delegates only 88.7 per cent of the budget to schools.
The survey of schools suggested a very variable level of satisfaction with services. Overall, the cost of central support to schools is almost twice that of the average for all LEAs.
The report recommends the local authority take urgent action to improve literacy and numeracy at the upper end of primary; develop a coherent approach to raising standards in maths; and take steps to improve its support for failing schools.
The report has been welcomed by Southwark. The chair of education, Stephanie Elsey, said the inspection had recognised its progress. She said:
"Difficult decisions have been made in recent months. I am confident these will lead to greater progress."