Leisure services, parks and libraries have all been early targets of cutbacks, but nothing is considered off limits as councils say they face a 12.1% cut in core government funding for 2011-12.
How are local authorities funded?
Local authorities in England are funded in two main ways, through central government grants - which include redistributed business rates - and council tax.
Central government grant money pays for capital projects, such as roads or school buildings, as well as what is called revenue spending, such as the cost of maintaining council housing and running services, including employee wages.
What grants do councils get?
Currently, local authorities receive three types of central government revenue grants to fund local services.
The first are specific grants, which pay for individual services, such as key government priorities. This money is ring-fenced and must be used in the way specified.
The second are area-based grants, which pay for services deemed by a council and its partners to be local priorities.
The third are formula grants, which are calculated using mathematical formulae based on, among other things, the local council tax base and how many people rely on local services.
What do councils spend the money on?
This year the biggest cost for councils is education, this is followed by social care police and highways and transport. Other spending goes on housing and the environment.
How hard are local authorities going to be hit?
Councils in England are going to lose a big chunk of the financial support they receive from central government. Government support is to be cut by 27% over the next four years. That means a cut, collectively, of several billion pounds in their primary source of income. Comparable cuts are also expected in Scotland, Wales and Northern Ireland, where the level of government support for councils is decided by the devolved administrations. Communities Secretary Eric Pickles says English councils' spending power will fall by an average 4.4% and a maximum of 8.9% next year. "Spending power" covers both government grants and money raised locally in council tax. The Local Government Association says the core formula grant funding is being cut by 12.1%, once grants for the police are excluded.
Where can I see the figures for my local council?
The local government settlement as it is called has been announced, and you can see the figure for your council by clicking on the link under point 6 of "notes to editors" on this page of the DCLG website. Some councils are more dependent on government grants than others, who raise more in council tax. Councils will agree their budgets for 2011-12 early next year.
How long will it be before we know how services will be affected?
Some councils have already made cutbacks in anticipation of the financial squeeze. Lincolnshire County Council, for example, is part of the way through a three-year efficiency programme to save £100m. It believes it will have to cut an additional £60m to £80m as a result of the Spending Review. Other councils are to share services while tens of thousands of jobs are set to be axed across England. We can expect an increasing volume of announcements and leaks about specific cuts as we move into the new year.
Are some areas more likely than others to be hit?
Leisure services, parks and libraries have all been early targets for cutbacks. Though valued by local communities, they are not seen as "front line" and many councils are eager to divest them to the voluntary sector. Support services for children and young people have also been scaled back in many parts of the country. But the size of the reduction in government support means that local authorities will have to reconsider every area of activity. Nothing is off limits, including sensitive areas like adult social care.
Is anything ring-fenced?
Of the £76.2bn which councils received from the government this year, £42.2bn is ring-fenced - in other words the money has to be used for a specific purpose and the local authority has no control over that part of its budget. The prime example is the Dedicated Schools Grant. The schools budget is protected, but there are many aspects of education spending - such as the new school building programme - which fall outside the ring-fence and are therefore vulnerable to cutbacks, as we have already seen.
What other ideas are being considered?
Many councils have launched programmes to share services and staff in a bid to cut costs. Mainly this takes the form of merging back office functions such as information technology and human resources. But some local authorities have gone much further. Hammersmith and Fulham council is merging its entire education department with Westminster, while Christchurch Borough Council will share a chief executive and senior management team with neighbouring East Dorset. The other big idea, pioneered by Suffolk County Council, is to out source virtually all local services to private companies, charities or volunteers. Suffolk claims this will save 30% of its budget.
What does the government say about the cuts?
Communities Secretary Eric Pickles says he thinks councils can do more for less, and can cut waste and share services to deal with the funding situation. The financial settlement comes on the same day as plans to shake up local government have been unveiled in the Localism Bill which promises "a fundamental shift of power away from Westminster to councils, communities and homes across the nation". He also said the 37 hardest-hit councils would be protected by an £85m transition grant, which effectively caps their drop in spending power at 8.9%. However Labour say the poorest areas will be hardest hit.