MPs have issued a stark warning on the ‘very real’ prospect of more councils in England ‘effectively going bust’ if the Government does not address a £4bn funding gap.

A new report by the Levelling Up, Housing and Communities Committee urges the Government to overhaul the ‘regressive’ council tax system, the business rates model, and wider local government funding.

It calls for local authorities to get billions more a year to fund adult social care, a full review of the Education, Health and Care Plan system, and reform to make Special Educational Needs and Disabilities provision financially sustainable.

Committee chair Clive Betts said: ‘There is an out-of-control financial crisis in local councils across England.

‘The Government must use the local government financial settlement to help bridge the £4bn funding gap for 2024-25 or risk already strained council services becoming stretched to breaking point.

‘If the Government fails to plug this gap, well-run councils could face the very real prospect of effectively going bust.’

The chair of the Local Government Association’s resources board, Pete Marland, said: ‘As the committee rightly highlights, cost and demand pressures will continue to stretch council budgets to the limit.’

Cllr Marland added: ‘The amount of funding available to councils is out of line with the requirements placed upon them.’

The vice chair of the Special Interest Group of Municipal Authorities (SIGOMA), Graham Chapman, added that even the available funding is poorly distributed to the disadvantage of more deprived areas.

He said: ‘The first step to financial sustainability will be to close the funding gap identified in the report, and ensure additional funding goes to where it is needed most.’

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