Just one quarter of councils believe investing in staff IT skills is a high priority, according to a BT survey.
Despite 75% of local authorities stating ICT has already enabled a transformation of services, just 6% of respondents believe their council had a culture of innovation, while IT knowledge remains patchy within councils.
That is according to the telecoms giant's white paper, 'Public services: delivering the next generation of change', published this week, which found that 36% of the 400 respondents said staff lack sufficient levels of IT literacy, and 43% said social media skills were not good enough.
Just 7% of respondents strongly believed that data analysis skills were up to scratch, though nearly half said their councils used shared services well.
Ian Dalton, president of global government and health at BT, said: "It is clear from this research that public sector investment should be balanced across both technology and people, particularly investing in skills such as IT literacy.
"Many digital inclusion and IT skills training programmes exist, but focus on citizens, not on the development of employees.
"Improving these areas will help ensure organisations have the abilities required to work efficiently with new technology and continue to improve and streamline the delivery of public services."
However, BT found that councils still have an appetite to adopt more digital services, with 87% highlighting efficiency savings through technology as the most important aim.
Among the top priorities were the ability to drive staff collaboration and mobile working, both cited by 45% of respondents.
BT stressed that these areas would require high levels of IT literacy and innovation to ensure efficient implementation.