Councils 'set to keep cutting jobs'

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About 7,000 jobs have gone in the past six months as local authorities weather a "perfect storm" of falling income and increased demand on services, Sir Jeremy said.

New LGA figures estimate town halls are facing a £4 billion deficit in income compared to two years ago, thanks to a combination of depressed property prices and low interest rates - equivalent to a shortfall of £11 million every day against 2007-08.

This has come as councils have increased help to people struggling with mortgage payments and business rates as a result of the economic downturn.

Sir Jeremy said: "The tough economic outlook is forcing councils to take a look at almost every aspect of their finances. As the effects of the recession continue to be felt, we fully expect councils to keep on cutting jobs over the course of the next 12 months."

The LGA figures estimate that income from the sales of land, council buildings and other capital projects has fallen by £2.7 billion compared to 2007-08.

They also estimate that interest earned on cash deposits has dropped by £1.3 billion due to low interest rates. This excludes the effect of the Icelandic banking collapse, because councils are allowed to defer the impact of the crisis on their budgets until 2010-11.

Sir Jeremy said: "Town halls are being hit by a perfect storm caused by the recession. Sources of income have dropped sharply at a time when more and more people are turning to councils to help them through tough times.

"Town halls are feeling the effect of recession in exactly the same way as hard-pressed homeowners and families. Low interest rates mean councils are much less able to rely on their savings, plummeting house and land prices have hit hard and income from leisure centres and a range of other services has fallen."

Despite this, Sir Jeremy said town halls were taking "decisive action" to support people and businesses through the recession. This was helping to keep people in their own homes, aid the unemployed and help small companies stay afloat.