Town halls struggle over services

Two thirds of authorities are already getting more requests for housing and other benefits, according to a study by local government watchdog the Audit Commission.

One in 10 is also reporting significant pressure on state school places as parents find they cannot afford to keep children at private schools. In London the figure is even higher at around a third.

Meanwhile, fuel costs have driven up the bill for lighting streets, and revenue from deals with property developers has plunged along with the market.

Many town halls are taking drastic action in a bid to offset the estimated £2.5 billion impact they face as a result, the Commission found. Alongside efficiency drives, some 36% have dipped into their reserves, while another 25% plan to do so.

Nearly half either have or will be freezing recruitment, and 14% have or intend to make mandatory redundancies. Around a third have signalled or imposed increases in fees and charges, and 16% are cutting services.

The Commission interviewed chief financial officers from authorities across England between mid October and November to compile the bleak picture.

However, the head of the watchdog, Steve Bundred, insisted the situation was not as bad as some people claimed.

Recent falls in inflation, fuel prices and interest rates were helping ease the pressure. "While councils are in the firing line and undoubtedly face some very tough choices in the longer term, they should keep a sense of perspective," he said.

"By and large councils knew this downturn was coming and have planned for it. The pressures are real but councils are coping with them well."