As its annual conference in Harrogate starts today, the LGA warned that the extra cost pressures pose “a serious risk” to the future financial viability of some services and councils.

Cllr James Jamieson, LGA chairman, said: “As our analysis shows, the impact on our local services could be disastrous. This will stifle our economic recovery, entrench disadvantage, and undermine government ambitions to level up the country.”

The unforeseen cost pressures by both central and local government will add £2.4bn to council budgets this year, which will rise to £3.6bn in 2024/25.

The LGA reported that the “unprecedented crisis” is forcing councils to rip up financial plans set three months ago. Some authorities have said that in light of the current situation, cuts to local services may be necessary to balance their books.

Jamieson added: “Budgets are having to be reset with potential cuts to the essential services people rely on, in the middle of a cost-of-living crisis.”

The LGA has called for government support to ensure that councils have the resources to overcome unprecedented costs and protect services that communities rely on.

“Only with adequate long-term funding – to cover increased cost pressures and invest in local services – and the right powers, can councils deliver for our communities, tackle the climate emergency, and level up all parts of the country,” Jamieson said.

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In the Spring Statement, the government confirmed that it wanted the NLW to reach two-thirds of median earnings by 2024. Forecasts from the Low Pay Commission suggest this could mean an increases of almost 20% in the NLW in two years.

The LGA said that bringing the pay of the lowest-paid council staff in line with these forecasts would cost almost £400m. It warned that without additional government funding councils will be unable to keep up with the cost of the NLW increase, which would put council staff and local services at risk.

Cllr Andrew Western, chair of the LGA’s resources board, said: “Staff pay makes up a huge proportion of councils’ costs and it is clear that the rising cost of living is going to have a huge knock-on impact on pay pressures for local government.

“The forecasted sharp rise in the NLW – if unfunded – would hit council budgets hard and put services at risk.”

The LGA estimated that 35% of local government staff could end up being paid no more than the NLW by 2024 unless additional funding is secured.

Western added: “Only by fully funding the cost, can central government ensure councils can continue to protect vital services – such as adult social care, homelessness support, collecting bins and filling potholes – and the jobs of the public sector workers that deliver them.”

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The representative body for the capital’s 32 boroughs and the City of London said the councils had originally planned for an inflation impact of £300m in revenue budgets for 2022-23, but this was now estimated to be closer to £700m overall.

London Councils said that rising inflation had also cut £100m in real terms from the £330m financial uplift received by the boroughs in the local government settlement for 2022-23.

Cllr Georgia Gould, chair of London Councils, said: “Eye-watering inflation means our funding has effectively been cut by £100m already this year – and, overall, we face £400m of additional budget pressures.”

The analysis suggested that local authorities’ running costs for maintaining current services will be up to £300m higher due to the increase in inflation. The study also stated that construction contract expenses for some projects have risen by 20-25%.

The inflationary pressures are being felt most acutely in adult social care, which for some boroughs represents 70% of their controllable budgets.

Gould called for additional government funding to support councils with the rising costs. She said: “Without an increase in grant funding in line with inflation and, above all, funding certainty for the next two years, councils will be forced to make reductions to services, impacting those residents who need them most.”

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