Not sure if the first paragraph of this article is ambiguous by accident or design – I can’t figure out who, or what the ‘they’ is. I hope it means the ministers who need the reality check, because I can assure you that councils don’t need any help realising how desperate things are set to become.

Acknowledgement to Ruth Keeling of Local Government Chronicle

Ministers have been warned that popular council services could be lost forever unless they take a “realistic review” of what local government does and how it is funded.

Publishing the results of the first serious attempt to model the funding outlook for councils over the next spending review period, the LGA issued a bleak forecast of a growing multi-billion pound shortfall between the demand for services over the next decade and the resources available to fund them.

The report accepts that cuts in the next spending review could be equal to the 28% reduction in funding seen in this spending period as the government continues to tackle the budget deficit.

Using “optimistic” assumptions of councils’ other income streams as well as demand for services, the association says the funding shortfall is set to reach £16.5bn a year by 2019-20.

That annual funding gap represents a 29% shortfall across all services, but is calculated to rise to 66% if social care and waste collection are fully funded.

Similar protection for capital financing and concessionary travel fares would result in a 90% funding shortfall for other services.

Polling conducted by YouGov this month suggested two such services – libraries and leisure facilities – were the most popular with the public, with 39% and 27% of adults respectively claiming to have recently used them, compared with 11% who said elderly care services.

LGA chairman Sir Merrick Cockell (Con) said: “By the end of the decade, councils may be forced to wind down some of the most popular services unless urgent action is taken to address the crisis in adult social care funding.”

At the heart of the funding crisis is the rising cost of such care, which the LGA predicts will equal almost half of all spending by the end of the decade. It warned that its estimates were “extremely conservative”, with some councils “modelling social care demand growing at twice the rate of our assumptions”.

The document, released at the LGA conference on Tuesday, represents the organisation’s opening gambit as the Treasury and the Department for Communities and Local Government begin to plan for the next spending review period.

It will also raise images of the BBC documentary, The Street That Cut Everything, where residents attempted to do without council services entirely.

As well as calling for reform for social care funding and the repealing of some of the 1,300 statutory duties to which councils are subject, the LGA has called for the joint working being tested in the Community budget pilots and the troubled families programme to be implemented more widely.

Solace’s policy and communications director Graeme McDonald said the report painted a “bleak picture” and warned the squeeze on highways, planning and economic development would make economic growth even more difficult.

He warned that the funding gap would open up more quickly in different areas of the country. “There is a diversity of crisis, but crisis it is,” he said.

Stephen Hughes, chief executive of Birmingham City Council, said ministers had to “express a view on what is more or less important”. He added: “We have got to have a proper conversation about priorities.”

The LGA report made it clear that, with central services accounting for just £3bn a year, the challenge could not be met simply through efficiency savings.

However, local government minister Bob Neill continued to call for savings. “Councils must make savings by sharing back offices, getting more for less from the £60bn a year procurement budget, using their £10bn of reserves, tackling the £2bn of local fraud, or reducing in-house management costs,” he said.

LGA assumptions
Council tax frozen until 2014-15 and then growing by 2% per year, although the LGA notes this “may be optimistic” and council tax could rise by less

Business rate income to grow at 3.5%, in line with Office for Budget Responsibility forecasts

Central share of Business Rates to be returned to local government in 2013-14 and 2014-15 and grants to be allocated in line with total funding set in 2010 spending review

Total funding beyond 2014-15 to be reduced by £17.6bn by 2020, “broadly similar” to reductions in 2010 spending review

Reserves to be drawn down through to 2013-14 but then rebuilt in case of volatility in business rate income

Efficiency savings of 2% per year tapering to 1% per year by end of period