Further cuts to local government after the May 7 general election could undermine the viability of optional services and even threaten those councils are required by law to deliver, a cross-party parliamentary committee has warned.
Independent auditors have voiced concern over whether some local authorities will continue to be "financially sustainable" if required to make more cuts, after losing an average 37% of their funding since 2010, said the House of Commons Public Accounts Committee (PAC).
The committee said Eric Pickles's Department for Communities and Local Government (DCLG) "does not have a good enough understanding" of the impact of funding cuts on councils' finances or services, and had shown a "failure of leadership" on the issue.
Reductions in funding since 2010 have varied widely between councils, with some facing cuts of 40% and others just 5%, said the committee in a report. It found that the most disadvantaged areas with the highest spending needs have been worst hit by reductions in funding.
Local authorities had "on the whole responded well" to the cuts, but there were question marks over their ability to make further cuts and their financial sustainability over the medium term, particularly in the case of councils with responsibilities for adult social care and children's services.
Increased financial uncertainty caused by the DCLG's late announcement of funding settlements had forced councils to increase financial reserves, taking resources away from frontline services, said the report. Value for money was undermined by "cost-shunting", as reductions in the resources available for services like social care resulted in an increased burden for NHS hospitals.
The report urged the DCLG to "improve its oversight of the financial sustainability of local authorities" and said the Treasury should work with the department to introduce multi-year financial settlements for councils.
Committee chairwoman Margaret Hodge said: " The DCLG has overall responsibility for funding to councils. However, it takes a largely 'hands off' approach and does not have a good enough understanding of the impact of funding reductions, either on local authorities' finances or on services.
"It looks only at data on spending and has little information on service levels, service quality and financial sustainability. Without at least an idea of the amount of funding required to maintain statutory services to a minimum standard, it is hard to see how the department could ensure that local authorities are able to fulfil their statutory duties.
"Looking to the future, if funding reductions were to continue following the next spending review, we question whether the department would be in a position to provide assurance that all local authorities could maintain the full range of their statutory services.
"The department cannot at present satisfy us that it understands whether it is feasible and practical for local authorities to deliver the service transformation necessary to maintain financial sustainability. Nor does it understand what the effects on service users would be."
Graeme McDonald, director of the Society of Local Authority Chief Executives (Solace), said councils were "rapidly approaching breaking point".
" This report confirms the immense scale of the financial challenge facing local government," said Mr McDonald. "Continued reductions without a coherent plan for public service reform threaten the viability of statutory services. Government must act coherently and understand the cumulative impact of its decisions.
"All serious studies have agreed with the PAC in concluding that local government finance is on an unsustainable footing.
"Figures released today show that, next year alone, councils will need to cut £1.1 billion from other services to protect social care. This is equivalent to the cost of filling 20 million potholes, running almost every library in England or employing 80,000 school crossing patrol attendants.
"The next secretary of state will need to confront this, it cannot be postponed any longer. Councils have led the way on deficit reduction but are rapidly approaching breaking point."
Local government minister Kris Hopkins said: "We have continued to deliver a fair settlement to every part of the country - north and south, rural and urban, city and shire - and the truth is that councils have continued to balance their budgets while public satisfaction with services has been maintained.
"Every bit of the public sector needs to do its bit to pay off deficit left by the last administration, including local government, which accounts for a quarter of all public spending. But so far over this parliament council spending, excluding education, has actually increased in cash terms.
"Every council should therefore be able to deliver sensible savings while protecting frontline services for local taxpayers and keeping council tax down. This includes tapping into the £21 billion of reserves which town halls have been quietly holding back year-on-year."