Cuts 'risk public sector tsunami'

Councils have become too reliant on central funding, the report says

Spending cuts in the public sector risk having a "tsunami-like" impact on investment in important infrastructure, a think tank has warned.

The New Local Government Network said the "dramatic" spending squeeze likely after the election threatens housing, transport and education projects.

All the main parties want to curb "excessive" public sector pay and warn of budget cuts in certain areas.

Councils must look to raise their own cash in response, the think tank added.

'Debt anxiety'

The left-leaning organisation warns that councils have become "almost totally reliant" on central government for funding and are vulnerable to cutbacks in spending expected as the parties try to get to grips with the huge level of public debt.

The prospect of a "tsunami of a public sector recession" is real, it warns, with severe consequences for funding for new road and rail schemes, housing and school buildings.

We urge preparedness within the sector for the looming political obsession with national debt Chris Leslie, New Local Government Network

"Anxiety over the level of public sector debt is set to define the next decade of public service provision in the UK," said the think-tank's director, former Labour minister Chris Leslie.

"But such a mindset risks a scenario in which economic growth is fettered by inadequate investment in the nation's infrastructure."

"We urge preparedness within the sector for the looming political obsession with national debt which could see a Treasury cutting capital grant and loan availability severely."

In response, it says councils must do more to raise their own funds and suggests ways such as issuing bonds in the financial markets, increasing borrowing, selling assets or charging for services.

The report comes days after Conservative-controlled Barnet Council approved plans which could see residents pay more for certain services in what some have dubbed a "no-frills airline model".

The council says it is looking at various options to benefit residents and businesses in the face of "significant spending challenges".

In trying to halve the deficit over the course of the next Parliament, Labour says low-priority budgets will be cut and top officials in the public sector will have their pay frozen but the party insists that frontline services will be protected.

The Conservatives say public spending must be cut now and it has called for a one-year pay freeze across the public sector in 2011.

It says councils must become more efficient and accountable but - in return - it will give them greater control over their own budgets.