The Audit Commission has raised concerns about the capacity of one in three authorities to deliver their medium-term plans in its third annual review of council finances.
The commission’s Tough Times report also found that metropolitan authorities faced the “highest level” of financial risk in 2013.
One in 10 councils of all kinds could struggle to deliver their budgets in 2013-14, it added.
Authorities in the most deprived areas of England had also suffered the deepest reductions in funding relative to spending since 2010-11 this year’s report said.
The report is the third in an annual series that looks at how well councils are surviving cuts in grant and income.
“Councils serving the most deprived areas have seen the largest reductions in funding relative to spending since 2010-11,” the report said.
In almost half of the most deprived areas, funding cuts exceeded 15% over three years. Among the least deprived areas only 8% had suffered cuts on this scale.
Overall, the commission found 64% of councils were well placed to deliver their medium-term financial plans.
Of the others, 28% were judged to present a future financial risk and 8% both a current and ongoing risk.
Child and adult care absorbed 61% of providers’ spending, it noted.
Without naming councils, the report said: “At least two in five London boroughs, metropolitan districts and unitary authorities are in the ongoing or future risk categories. “Metropolitan district councils present the highest level of ongoing risk in 2013 with 14% in this category”.
Rob Newton, principal policy officer at the Special Interest Group of Metropolitan Authorities, said: “The poorest areas have been hit the hardest by cuts to local government spending.
“Those that have had to find significant savings to date have fewer options for securing additional savings in the future.”
The Chartered Institute of Public Finance & Accountancy called for an independent commission to oversee grants distribution.
Chief executive Rob Whiteman said: “The most deprived councils in Britain are those that have suffered the deepest cuts to their budgets. The report also highlights that these same councils are now the most at risk of failing.”
A commission could “stop the political seesaw of the local government funding settlement”, he said.
Hugh Grover director of fair funding, performance and procurement at London Councils, said: “In London, the double whammy of cuts linked to the most diverse and fastest growing population, is a real concern in the medium to long term.”
Peter Stuart, president of the Society of District Council Treasurers, said: “District councils are well placed to weather the continuing cuts but the report agrees with what we hear on the ground that this is not achieved without a great deal of business planning and prudent risk assessment.”
Social research body the Joseph Rowntree Foundation and the Special Interest Group of Metropolitan Authorities have also this week published work raising concerns about the disproportionate loss of grant in deprived areas.