Britain's second city has a bright future ahead with the high-speed HS2 link on its way and the Commonwealth Games which it will host in 2022, bringing welcome stimulus for Birmingham's economy.

City council leader Ian Ward is ebullient, saying there are 'reasons for optimism' while announcing a budget for the next four years.

'The budget is not simply a response to our financial challenges,' he declared. 'It is a forward looking financial plan to transform the way we work, change the way services are delivered, and look towards new opportunities to improve quality of life for citizens in the long-term.'

It's a mood of optimism reflecting Theresa May's announcement last October – at the Tory party's conference in Birmingham – that austerity was over.

'When we’ve secured a good Brexit deal for Britain, at the spending review next year we will set out our approach for the future,' she said. 'A decade after the financial crash, people need to know that the austerity it led to is over and that their hard work has paid off.'

Under the bonnet, though, things may not be so rosy. Birmingham's budget includes plans to axe nearly 1,000 next year on top of huge previous cuts which have seen the city's workforce more than halved since 2010.

The council said it was facing 'the most challenging period its history' as it rubber-stamped other measures to cheer local residents including dimming street lights, increasing bulky waste and garden waste fees and reducing fly-tipping enforcement resources. And a 4.99% council tax rise.

Birmingham is not alone. Public sector financial experts CIPFA last year found English local authorities were spending 25% less in real terms than eight years ago and had lost nearly half their central government funding. They also found between 10% and 15% of councils now face the risk of financial instability.

There is a growing chorus of warnings over the future of local government as it struggles to offer services, including some such as social care which it is obliged by law to provide, in the face of growing demand and dwindling resources.

The National Audit Office warned last year that local authorities face 'a range of new demand and cost pressures while their statutory obligations have not been reduced'. Non-social care budgets had already been reduced substantially, leaving many authorities with less scope for further savings.

The 'current pattern of growing overspends on services and dwindling reserves exhibited by an increasing number of authorities is not sustainable over the medium term,' the NAO warned.

Despite optimistic words from many who understandably want to look on the bright side, all the signs are that local councils are facing a sustained attack on their ability to provide services for their communities.

Northamptonshire was the first to announce last year that in future it would only be able to offer the basic minimum statutory services. It seems likely the list of those forced into a similar position will continue growing.

The change in business rate retention next year – meaning councils will be allowed to keep more of the business rates they collect – will be good news for already prosperous boroughs with a thriving economic base. Less so for struggling post-industrial regions in the north of England and elsewhere. And in an attempt to shift tax-raising away from central government, funding from Whitehall will continue to decline.

As CIPFA notes in its report, tough decisions will have to be made. Local authorities could increase council tax. They could try to persuade people to accept things have changed and the council cannot provide what it used to – 'lowering expectations' – or they could charge for some services to raise income. Or, as seems likely, they could adopt various combinations of all three strategies.

Either way, there are challenges ahead. Council leaders will need all the ingenuity and creativity they can muster to deal with the various conflicting pressures as, notwithstanding Mrs May's encouraging words, austerity seems likely to continue into the next decade at least.

They will also need a shot of Cllr Ward's optimism to see them through.