The Local Government Association (LGA) said the extra 10% cut for 2015/16 unveiled by the Chancellor in last week's spending review, on top of previously announced cuts of 33%, would hit the delivery of public services, while some could be lost altogether.
The cost of running hospitals, prisons, the police service and the welfare system will increase, the LGA said in an updated financial report following the latest cuts.
The difference between the projected funding councils will have in 2019/20 and the cost of providing services - described as a financial black hole - is widening by £2.1 billion a year and will reach £14.4 billion by 2020, said the LGA, which represents councils in England and Wales.
The report said the current funding system was "broken" and called for a "radical overhaul" of the way services are provided and paid for across the public sector.
Spending on adult and children's social care and waste management will "soak up" an increasing share of councils' budgets, leaving money for other services such as leisure and cultural facilities, road repairs and building new homes falling by 46% by 2020, according to the LGA. The scale of cuts will have "inevitable" consequences on services, hitting projects which would stimulate economic growth and create jobs.
"Whoever forms the next government will need to address this funding shortfall as a matter of urgency. A key pillar of every manifesto must be support for the vital local services which keep people healthy and out of hospital, make sure children are ready to learn when they get to school and help deliver economic growth and jobs to local areas. This requires a complete overhaul of the way public services are provided and paid for. It is the only way to avoid the looming disaster revealed by this analysis.
"When people talk about councils being able to close the funding gap through greater efficiency they neglect to mention that the bulk of those efficiencies invariably involve either restructuring, tightening eligibility criteria for services and care, and prioritising spending on some services at the expense of others. In other words the efficiencies they talk about are, in significant part, cuts to budgets which lead to reductions in services. It is unfair to our residents to raise the expectation that trimming 43% from council funding will have no impact on the services they receive."
The LGA added that if councils used their financial reserves to cover the cuts, this "invaluable safety net" will be exhausted within three years.
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