According to Paul Johnson, the director of the Institute for Fiscal Studies (IFS), inflation could have a worse effect on local government than austerity did.
Recent research by the IFS has found that councils would need an additional £1.2 billion to protect the 3% increase in core spending power for this year.
Speaking to the Local Government Chronicle, Johnson warned that if the conservative leadership contenders did not increase public sector funding to compensate for rising costs, they risk bringing back austerity “by the back door”.
He said: “The scale of the cuts – the actual cuts – in the early 2010s, I think will be much bigger than any real cuts that do happen over the next couple of years, but of course from a much tougher base.
“Bluntly, we know that the first few years of austerity were not very hard for local authorities, because they did have quite a lot of money. That’s not the case now.
“I think the effects could be worse, because even small changes when you’re teetering are potentially bigger than big changes when you’re fine.”
Johnson pointed out that neither Rishi Sunak or Liz Truss have outlined their plans for public spending and public services during their leadership contest.
Johnson said it was inconceivable for the new leader to not find more money for public services, however Truss has been talking about finding savings instead.