Rising costs due to inflation and the increased cost of borrowing is putting the squeeze on local government finances, but one council is hoping plans already in place will see it through – for now.

Last week, following record falls in the value of the pound, Chancellor of the Exchequer Kwasi Kwarteng announced there would be strict discipline to ensure government departments kept within their current spending budgets.

This has been interpreted by borough and districts councils as meaning they can expect no increase in government support grants – despite inflation running at 10%.

The local authorities are hampered from raising revenues elsewhere to make up the shortfall by a cap on any increase in council tax at 2%. Any increase above 2% requires a local referendum to approve the rise.

David Burton is the leader of Maidstone Borough Council. He told a meeting of the council: "We are trapped between inflation and a cap on council tax increases.

"Never before have we seen so many pressures rising together."

Beyond simply inflationary pressures, the demand for council services is also growing as the economy tanks.

Cllr Burton said: "We are seeing an unprecedented demand for housing. Our housing list is growing at a rate previously not seen."

Maidstone had previously planned an ambitious £250m capital investment programme over the next five years, including facilitating the provision of 1,000 new affordable homes.

The council has borrowed forward £80m of that sum, but still has £170m of loans to arrange.

The council's director of finance, Mark Green, warned the borough's audit committee that with just a 1% increase in the cost of borrowing that money would add an extra £1.5m in interest cost each year for 50 years.

But Mr Green insisted that this year's council budget – lasting till next April – remained on a firm footing, partly because the borough had built in an extra £1.3m to allow for inflationary pressures and had in addition started the year with a sound unallocated reserve fund of £9m.

But he said the prospect for the 2023 budget was challenging.

With staff costs making up around 50% of the authority's expenditure, Mr Green said: "The council will need to balance the requirement to support employees in meeting the cost of living with the need for future pay settlements to remain affordable."

The statement angered Cllr Stuart Jeffery (Green), who said: "I suggest if the council can't pay its staff enough to live on, then the council is not viable."

Mr Green said: "I do recognise that members of staff, particularly at lower levels, may be struggling to make ends meet.

"The council will meet its requirement to meet the national minimum wage."

Peter Titchener, a parish representative on the borough's audit committee, was concerned about the risk to the council's capital programme. He asked: "Will any projects have to be cancelled?

Mr Green said: "Clearly with inflation our money won't be going as far, so we will be reviewing the capital programme.

"We will have to consider whether to rein in our ambitions or expand the capital programme [ie borrow more money]."

He said that when costing schemes, the council had made predictions about future revenues; the council may now have to look for a higher rate of return to recover the extra costs of borrowing.

He said: "If before we were looking for a 5% return, we may now need a 6 or 7% return, so some schemes may not be viable in the future."