Local government funding cuts are creating a financial crisis in England’s major cities that threatens to derail plans for local growth and public service reform, ministers have been warned.

In a second open letter penned yesterday to communities secretary Eric Pickles, the leaders of England’s ‘Core Cities claim increasing demand on services amid changes to the finance regime mean savings targets are several times greater than the cuts in grant.

Comprising the cities of Birmingham, Bristol, Leeds, Liverpool, Manchester, Newcastle Nottingham, Sheffield, the council leaders argue these major urban areas, which account for more than a quarter (27%) of the nation’s economic capacity, are particularly disadvantaged because they are forced to deliver far greater volumes of statutory services to vulnerable people.

According to the letter, the biggest council funding cuts are yet to come, with average grant reductions for 2014/15 likely to be around 10%. With deeper cuts anticipated from the imminent spending review, the reductions in services starting this year will intensify with the complete decommissioning of some services in the year after next.

Efforts to boost economic growth could be hit by funding cuts, and in Bristol there is a real danger money allocated for the Enterprise Zone and City Deal would be diverted to meet pressures from unfunded services.

Additionally, funding shortages could undermine attempts to reform local services through community budget arrangements, which research suggests could save the public purse up to £22bn over five years, the letter states. The letter contains evidence detailing the deeper impact on major cities’ spending power, higher levels of demand on children’s services, increased levels of homelessness, overcrowding and fuel poverty.