Britain’s most deprived councils have been hit with the largest budget cuts and could struggle to deliver statutory services under further reductions, MPs have warned.

Central government funding for town halls is expected to reduce by 37% between 2010/11 and 2015/16, yet certain councils will see only 5% reductions while other witness proportional cuts eight times as high – members of the public accounts committee said today.

Fears were also raised as to whether the Department for Communities and Local Government (DCLG) could provide assurances councils would be able to maintain all of their statutory services if hit with continuing funding reductions in the next spending review.

MPs blasted DCLG for failing to have ‘a good enough understanding’ of the impact of funding reductions on town hall finances or services.

Committee members said it was also ‘unclear’ whether the department was providing enough leadership to ensure councils could successfully make services more financially sustainable.

Margaret Hodge, committee chair, said: ‘Councils with the greatest spending needs – the most deprived authorities – have been receiving the largest reductions. Further cuts could not just undermine the entire viability of most optional services, but might threaten some statutory services in these areas.

‘Value for money could be undermined by reductions in spending which lead to “cost-shunting” between local government and other service providers – for example, reductions in social care provision leading to bed blocking in NHS hospitals.’

She added that DCLG ‘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’.

Responding to the report, 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 £21bn of reserves which town halls have been quietly holding back year-on-year.’