The Government's refusal to allow local authorities in England and Wales to spend more than £200m of capital money on redundancy costs means they will have to find hundreds of millions more from their revenue accounts, prompting yet more cuts.
The Local Government Association says the £200m the Government is allowing for capitalization of redundancy costs is less than 1% of the 350 authorities' pay bill.
Around 140,000 local government jobs are set to be axed in England and Wales in 2011-2 and the redundancy bill is likely to be measured in billions.
The LGA says the eight largest cities outside London alone estimate they will have to lose more than 10,000 posts at a cost of £317m - more than one-and-a-half times what the Government has earmarked to ease the cost of redundancy.
"With frontloaded cuts, councils need to make rapid workforce reductions," said LGA vice-chairman David Sparks.
"Often, the money to fund these one-off reductions can only be found from capital resources. On one hand the Government is urging councils to dip into their financial reserves to protect services while on the other hand it is preventing them from spending their own money."
He said councils should get more flexibility over their capital resources to pay for redundancy costs as they need to.
"The severe and unexpected frontloading of the cuts limits the scope of councils to reduce their spending through more innovative measures, such as shifting to shared services, renegotiating longer-term service contracts or outsourcing service delivery," said Cllr Sparks.
"Major changes such as these take time and money to implement. Councils need the flexibility of capitalisation to help restructure their services as quickly and efficiently as possible to avoid unnecessary job losses."
