Local authorities in England and Wales have warned their finances are at “breaking point” with more councils expected to fall into bankruptcy in future, as they face a nervous wait to discover their government funding this month.

Council leaders expect changes to annual funding arrangements will result in steep cuts for many local authorities, preventing many from balancing their books and providing basic services to citizens.

Amid a crisis in local authority funding, 29 councils have already been unable to meet their financial obligations without special government loans, including Croydon, Thurrock in Essex and Birmingham.

Norfolk county council’s deputy leader for finance, Andrew Jamieson, said the number of local authorities unable to meet their statutory obligations was likely to grow when the government publishes a new funding settlement this month.

“We are often accused of crying wolf, but local authorities are reaching breaking point now,” he said. “The money’s not there. There are bound to be some more councils that cannot meet their obligations.”

A spokesperson for the Local Government Association, which represents councils across England and Wales, said: “Cost and demand pressures are unrelenting, particularly in key demand-led services such as children’s social care, adult social care, homelessness and home-to-school transport for children with special educational needs (Send).”

They added: “Councils need a significant increase in overall funding to stem the emerging risk of system-wide financial failure and to ensure that councils can meet demand for the vital services needed by their communities.”

The government agreed a three-year deal for local councils as part of a spending review in the summer. But the formula used to allocate the funding has yet to be published.

The government said the outcome of its “fair funding review 2.0”, which is expected to be published on 17 December, will help councils cope with high levels of deprivation.

Jamieson, a member of the ruling Conservative group on Norfolk county council, said revisions to the funding formula would leave many councils with high levels of need worse off. While he expects to close a £62m spending gap with further efficiencies, his council still has a £6m spending gap that could only be closed through cuts to services or raising council tax from 3% to the 4.99% cap.

There are councils ranked as having higher levels of social deprivation, but 26% of Norfolk’s population is aged over 65 and many need local authority support, he said.

Labour insiders said the funding changes were a response to Rishi Sunak’s redrawing of the rules when he was prime minister in favour of wealthier Conservative counties and districts.

They said Labour introduced a recovery fund last year to redress the balance, which would be made permanent in the fair funding 2.0 settlement. They added that funding allocations on 17 December would prevent any councils from going bust in 2026-27.

A spokesperson for the Ministry of Housing, Communities and Local Government said: “Local leaders set their own council tax levels with increases limited to 5% without support from a local referendum, and we’ll continue to give taxpayers the final say on increases.”

Despite the extra cash for poorer areas, many Labour councils expect to make difficult decisions before agreeing a budget for 2026-27.

Hartlepool borough council said last week that it planned to freeze council tax bills, but it still needed to close a £9m deficit, including £3m from the cost of the tax freeze.

The council’s leader, Pamela Hargreaves, said she wanted to balance the 2026-27 budget “in a way that does not increase the council tax burden on already hard-pressed families”.

Jamieson said: “When the government says local councils are receiving funding increases worth more than 1% after inflation, we need to remember that includes the income from a maximum 4.99% rise in council tax.”

Council tax receipts accounted for 42% of Norfolk’s income four years ago and 60% this year, he said, after steep increases under Conservative and Labour governments.

“The way local government is funded is not sustainable. Since 2012, we have made savings of £652m and making those savings gets harder each year.”

Joanne Pitt, a senior policy adviser at the local authority accountancy body Cipfa, said borrowing by local authorities had reached £1,500 per person and was on course to rise further.

Most of the 29 authorities given exceptional financial support – a temporary loan from the government – were rolling over the loans to stay afloat, she said.

“Local authorities are not in a position to pay back loans, and that is even more the case for the 30 receiving exceptional support,” she said.

Cornwall council will be among the first local authorities to publish a budget for the 2026-27 financial year when councillors sign off a first draft next week.

Expected on Tuesday, the document will show how the council has saved between £40m and £70m to control spiralling costs, mostly due to rising bills for children’s special needs and elderly care. The cuts come after £50m of savings were made in the previous year.

London Councils recently warned that boroughs in the capital were grappling with a £1bn funding shortfall this year, and a cumulative budget gap of £4.7bn across 2025-26 to 2028-29.

The group forecasts that half of boroughs could require emergency financial support by 2028 to avoid bankruptcy.

John Merry, the deputy mayor of Salford and chair of the Key Cities group of councils, which includes Southampton and Sunderland, said: “Our survey of city leaders from across the country has shown that councils are dealing with impossible choices in the face of spiralling costs for social care and temporary housing, among other vital services.”

The Labour councillor said 60% of councils expected to use asset sales next year to close deficit gaps, adding: “These are not decisions that any politician wants to make and offer a stark indicator of the impact of over a decade of chronic public sector underfunding.”

Mike Cox, the head of finance at Bournemouth, Christchurch and Poole council, said local authorities faced the prospect of huge funding cuts being levied only weeks before budgets needed to be agreed.

“Uncertainty from central government is making a difficult situation worse. Councils are left to choose between raising taxes, selling assets, and cutting essential services. We need clarity and a fair funding settlement now. The fair funding review appears to be anything but fair,” he said.