Councils warn of £1.5bn shortfall

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English and Welsh councils say Whitehall grants to them for the next three years are worth £1.5bn less than they were.

Inflation and soaring food and fuel prices are being blamed by the Local Government Association (LGA).

Local authorities will have to come up with new ways to safeguard vital local services and keep council tax down, the association added.

Budgets were based on inflation running at 2.7% rather than the current 4.7%.

The LGA, which represents over 400 councils in England and Wales, said members have had to spend £374m more than expected in fuel costs and the rise in repossessions was putting pressure on social housing.

The bill for school food alone had risen by £80m this year, the report said.

Tighten belts

Local authorities have also had to increase subsidies to bus companies and town halls have experienced falling service charges as a result of the housing market collapse, it added.

Margaret Eaton, chair of the LGA, said economic environment was affecting everyone, but it was hitting town halls particularly badly.

"As the hard financial times bite, local councils are having to tighten their belts in exactly the same way that hard-pressed families are," she said.

Local representatives were identifying "innovative ways to make their money stretch further" and make sure costs were not passed on to taxpayers and services were not cut, she went on to say.

The report suggested joining up with NHS trusts or prisons to bulk buy fuel might be one solution.