Almost one in five councils are likely of fairly likely to declare effective bankruptcy by issuing a Section 114 notice this year or in 2024.

The Local Government Association said councils in England faced a £4 billion funding gap over the next two years just to keep services standing but the Autumn Statement had failed to provide additional funding to prevent further cuts.

Half of council leaders were not confident they will have enough funding to fulfil their legal duties next year (2024/25), including the delivery of statutory services.

Councils’ core spending power fell by 27% in real terms from 2010/11 to 2023/24 due to the impact of the pandemic, rising demand for services, in particular statutory services like social care and homelessness support, and the extra costs to provide them.

The LGA said the government urgently needed to use the forthcoming provisional Local Government Finance Settlement to provide sufficient resources to set balanced budgets next year without having to make drastic cuts to services.

Cllr Shaun Davies, LGA chair, said: “If councils cannot thrive then our communities cannot thrive. If social care services that councils provide cannot cope with demand, then pressure on the NHS will grow further. If council housing teams can’t succeed, then all of our hopes for new homes will not succeed.

“While councils have worked hard to reduce costs, find efficiencies and transform services, the easy savings have long since gone. The government urgently needs to act to address the acute financial challenges faced by councils.”

Professor Martin Green, chief executive of Care England, said: “The results of the LGA survey make for unsettling reading, but it won’t come as a surprise to anyone in the social care sector. Local authorities have been underfunded by central government for years, compromising their ability to adequately fund social care and ensure it is fit for the future. Social care providers are being forced to reduce capacity to ensure that they are still able to deliver high quality care for an ageing population with increased levels of dependency.

“They’re forced to do more for less. Part of the support Care England offers to providers is our new publication ‘Savings, Solutions and Sustainability’, which is designed to help providers reduce costs and sustain future provision. This alone can’t solve the problem of inadequate funding for adult social care, so we will continue to call on central government to ensure local authorities have sufficient funds to meet the care needs of their populations.”