Councils have warned that neighbourhood services will have to be cut despite a Government bailout, with fears that more authorities will go bust over the coming years.

If further funding is not made available in the Budget on March 6, communities will face the consequences of a worsening financial crisis across local government, the Local Government Association (LGA) said.

An LGA survey of council chief executives found 85% of local authorities continue to plan reductions in spending on key services after the Government made an extra £600 million available for 2024/25.

The LGA said the funding gap over the next two years is £4 billion, with 58% of councils reporting that the impact of any extra funding will be small.

More than two-thirds (68%) of councils said they expect to make savings in at least one neighbourhood service such as waste collection, road repairs and library and leisure services.

Of the councils responsible for social care, three-quarters said they will have to reduce costs in adult care budgets and three in five said they will do the same with children’s care budgets.

It comes despite £500 million in emergency funding recently being specifically earmarked for these support services.

Half of these upper-tier councils also said they will have to cut costs in four or more neighbourhood services, while half of all councils, included lower-tier districts, reported there will be a negative impact on three or more of these services.

When neighbourhood services are broken down, 55% of councils said savings will be needed in sport and leisure provision, with around half (48%) reporting impending cuts to library services.

The same percentage of respondents said savings will be needed in budgets for parks and green spaces, while a third said the same for museums, galleries and theatres.

In its submission to the Government ahead of the Budget next week, the LGA highlighted growing demand and costs in school transport and homelessness services as causes for concern alongside social care.

LGA chairman and Labour leader of Telford and Wrekin Council Shaun Davies said authorities are being forced into making “stark choices” about what services to cut.

This will not go unnoticed by our local communities. It means less potholes filled, more streetlights dimmed or turned off, and fewer library or leisure services

He added: “This will not go unnoticed by our local communities. It means less potholes filled, more streetlights dimmed or turned off, and fewer library or leisure services.

“Without further funding, cost and demand pressures will continue to stretch council budgets to the limit and lead to more of the cherished services our communities rely on every day from having to be drastically scaled back or lost altogether as councils are increasingly forced to do more with less.”

A separate survey of senior council figures by the Local Government Information Unit (LGIU) found more than half fear their authorities are likely to go bust in the next parliament unless local government funding is reformed.

Some 9% of council respondents representing 14 separate authorities said they are likely to declare effective bankruptcy in the next financial year.

The LGIU received 160 responses from 128 unique councils across England out of a total of 317. The respondents included 32 chief executives, 37 council leaders and 34 cabinet members for finance.

LGIU chief executive Jonathan Carr-West said: “With over half of councils warning us they are at risk of bankruptcy within the next parliament, it is no longer possible to blame individual governance issues.

“There clearly is a systemic issue and, rather than bunging local government panicked injections of cash, whoever wins the next election will need to reform the entire system, bringing back multi-year settlements based on an area’s need and developing new ways of revenue-raising.”

District councils have also warned the increase in demand for homelessness support could lead to “counterproductive” cuts to services which have an impact on the wider determinants of health.

Sam Chapman-Allen, chairman of the District Councils’ Network (DCN) and Conservative leader of Breckland Council, said: “We are still at the point where well-run, responsible councils will likely have to make deep and counter-productive cuts to services to avert financial crisis.

“Despite planning to deliver around 10% in cuts and efficiency savings on average this year, many DCN councils will have significant budget gaps going into the new financial year.”

Both the LGA and DCN have questioned the Government’s move to encourage councils to use their financial reserves to plug funding gaps this year.

Figures recently released by the County Councils Network showed nearly all top-tier councils plan to raise council tax by the maximum permitted to avoid financial distress.

A total of seven councils have issued a Section 114 notice declaring effective bankruptcy since 2020, with 10 councils believed to have current applications in for emergency financial support from the Government.

A Department for Levelling Up, Housing and Communities spokesman said: “We recognise councils are facing challenges and that is why we recently announced an additional £600 million support package for councils across England, increasing their overall proposed funding for the upcoming financial year to £64.7 billion – a 7.5% increase in cash terms.

“This additional funding has been welcomed by leading local government organisations, but we remain ready to talk to any concerned council about its financial position.”