Some of England’s biggest councils could see “large-scale reductions” to services as they attempt to balance the books, new analysis says.
A report for the County Councils Network found that 39 local authorities face a funding shortfall of £2.5bn.
It warned councils may have to “use up” all the money they hold in reserve by next year as they deal with the fallout from coronavirus.
The government said it was giving councils “unprecedented” support.
Minister for Local Government Simon Clarke said this included £3.2bn in emergency funding.
“In total, the government has provided over £27bn to support local councils, businesses and communities in fighting the pandemic, including £600m to help reduce the infection rate in care homes and £300m to support track and trace,” he said.
He added the government was working on a “comprehensive plan to ensure councils’ financial sustainability over the coming year”.
The pandemic has put pressure on local councils with increasing costs of social care and support for the most vulnerable, while income from fees and charges have fallen sharply during the lockdown.
There is also concern that revenue from council tax and business rates will significantly drop as the country faces a recession due to the economic turmoil of coronavirus.
This isn’t the first time local authorities have warned about the impact of this crisis on their finances – and it’s unlikely to be the last .
Council budgets have been stretched for some time with social care under particular strain.
The problem has been exacerbated by this virus, with care costs climbing and usual income streams falling.
The government has made more money available, but many local authorities have said it falls short of what’s needed.
A few councils have quietly suggested they might get to the point they can’t legally balance the books, and may have to effectively declare themselves bankrupt.
Others are suggesting further cuts to services will be necessary to meet the shortfall.
Ministers say they are working on a comprehensive settlement to make sure the sector is sustainable.
With the government facing huge demand for financial support in whole range of areas, councils want to make sure their voices are heard.
The report into the finances of local authorities was carried out by accounting firm Grant Thornton UK LLP.
It found that county authorities could be “particularly vulnerable” in the event of a second wave of the coronavirus.
If there was further outbreak, followed by another lockdown, the report estimates councils could face a shortfall of £4.5bn over the next two years.
The report suggests the government should provide financial support to ensure councils do not run out of money.
Councillor Carl Les, finance spokesperson for the County Councils Network and leader of North Yorkshire County Council, said local authorities are “grappling with increased cost pressures”.
“We want to work with government to develop a comprehensive plan to support councils over the coming months and years.”