MORE than half of councils say that they are at risk of bankruptcy over the next parliament unless local government funding is reformed.

Councils also warned that neighbourhood services will have to be cut despite a government bailout ahead of next week’s Budget.

A survey of senior council figures by the Local Government Information Unit (LGIU) found that 51 per cent said they feared their local authority would go bust over the next five years.

One in 11 of the respondents, who between them represented 14 separate authorities, said that they are likely to declare effective bankruptcy in the next financial year.

LGIU chief executive Jonathan Carr-West said: “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, of the District Councils’ Network (DCN) and Breckland Council Conservative leader said: “We are still at the point where well-run, responsible councils will likely have to make deep and counterproductive cuts to services to avert financial crisis.”

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

Meanwhile, the LGA warned that neighbourhood services will have to be cut despite a government bailout, if further funding is not made available in the Budget on March 6.

Its survey of council chief executives found that 85 per cent of local authorities continue to plan reductions in spending on key services after the government made an extra £600 million available for 2024/25.

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

A total of seven councils have issued a section 114 notice declaring effective bankruptcy since 2020.

The Department for Levelling Up, Housing and Communities said: “We recognise councils are facing challenges and that is why we recently announced an additional £600m support package for councils across England, increasing their overall proposed funding for the upcoming financial year to £64.7bn — a 7.5 per cent increase in cash terms.”

UNISON head of local government Mike Short said: “Councils across the country are teetering on the edge due to years of deliberate government underfunding.

“Many are in such dire straits that a succession of bankruptcies is probably not far off.

“The squeeze on budgets has been so tight that most local authorities’ reserves were drained long ago. Severe cuts and increased charges are inevitable unless the government starts funding them properly.

“Councils provide essential services that are the very fabric of local communities. When these go, people’s quality of life suffers and those hardest hit are the poorest.

“There has to be a new, much fairer way of funding local government, otherwise there’ll soon be nothing left.”