Jeremy Hunt has been warned he will trigger a fire sale of public assets, reduce councils to an emergency service and put the vulnerable at greater risk after an autumn statement pointing to a new wave of austerity. There will be a significant increase in the number of councils in effect “returning the town hall keys” to government because they are no longer sustainable, according to council leaders. In a furious response to the autumn statement, they said several “flagship blue counties” could go bankrupt just as next year’s election is called. The backlash comes after economists concluded that the chancellor’s tax cuts last week in effect came at the expense of future public spending. Once settlements for Scotland, Wales and Northern Ireland are taken into account, non-protected government departments in England face an annual cut of 3.4% for five years. The state of prisons, backlogs in the legal system and pressure on further education have caused most immediate alarm. Sir Bob Neill, the Tory MP who chairs the Commons justice select committee, said that there was a case for “revisiting which departments should be given protection” from spending cuts. Traditionally, ministers have chosen to prioritise the NHS and schools. However, local government sources said that after austerity since 2010, there was now an “existential threat” to local services – while big council tax increases could be on the cards. “Things are starting to fall apart at the seams,” said one despairing leader. Another warned: “We need to have a recognition that if we aren’t properly funded the rest of the country will fall over.” A third said: “The system is totally and utterly broken.” One senior Tory said: “The Treasury is fully aware that some flagship blue counties are right on the edge: falling over just before the election won’t look good.” Mel Lock, director of adult services for Somerset, warned of a real human cost. “No doubt about it, it’s going to be older and disabled people not getting timely support,” she said. “Some will end up in hospitals, or will be delayed leaving. That means lives will be restricted and foreshortened. That’s the bottom line to it.” Shaun Davies, leader of Telford and Wrekin council and chair of the Local Government Association, said there would be a big increase in the number of councils in financial distress. “Any suggestion of any further cuts on top of the current deficit we face and we’ll see the number of councils set to go bankrupt rise from one in 10 to a significantly higher number. “They’ve done the restructures. They’ve done the asset sales, they’ve done the staff reduction, they’ve done the service redesign and they’ve done the transformation. They’ve used the reserves already. Once those things are gone, they’re gone. My concern is that there is a wave of councils that will effectively return the town hall keys back to the government because there is just no way out of this.” Councils that in effect fall into bankruptcy can issue a section 114 notice, signalling that they cannot balance their budgets. Jonathan Carr-West, chief executive of the Local Government Information Unit which has just surveyed the opinions of council leaders, said he was “starting to talk about this as a sort of existential threat to local government”. “What has surprised me in the last couple of days is just how angry leaders are,” Carr-West said. “It’s big Labour cities like Bradford, but it’s also Kent and Hampshire – big Conservative councils. “I don’t believe that there is a conspiracy to destroy local government. But I think we are sleepwalking towards a position where councils just won’t be viable.” He said that while assets could be sold off in the short term, it would lead to a big transfer of wealth of public assets into private hands. Elsewhere, there are concerns over the condition of the prison estate and a lack of experienced officers. Charlie Taylor, the chief inspector of prisons, saidthe situation was “very fragile” and his biggest worry was the lack of activity for prisoners and the impact on their rehabilitation. “Out of 37 prisons we inspected in our last annual reporting area, only one of them was good or reasonably good for purposeful activity,” Taylor said. “The risk is that the revolving door of people committing crime going back into prison, costing the taxpayer a huge amount of money, simply continues.” There are also concerns about further education funding over the next five years. Louis Hodge, an associate director at the Education Policy Institute, said: “Cuts in funding for further education have been around twice the rate experienced in schools and over a quarter of children now live in relative poverty, based on data that does not yet fully reflect the effects of rapidly rising prices over the last year.” He added: “Whatever the outcome of the next election, it is clear there is much to do to get education back on track following a hugely disruptive pandemic and a decade dominated by funding cuts.”