Report into how councils are coping with credit crunch

And a fifth of councils are expecting a rise in demand in the near future, according to an Audit Commission report into how councils are coping with the credit crunch.

The report warns of an increase in demand for public services, including more children being taken into care as families break down under economic pressure. It also advises councils to carry out risk assessment on what would happen if frontline service contractors such as school meals providers go bust.

"Price increases could have reduced the margins for contractors, resulting in higher tenders when contracts are re-let, or even bankruptcy," says the report. "However the greater competition for work in a tougher economic climate could result in a better deal for councils."

One in seven councils has made compulsory redundancies or has plans to do, one in six councils has cut services or has plans to do so, and many councils are reviewing recruitment or leaving posts unfilled, the commission found.

But Steve Bundred, Audit Commission chief executive, said the overall picture was not the "crisis that has been portrayed in the media" and that most councils were coping with the downturn.

He said: "While councils are in the firing line and undoubtedly face some very tough choices in the longer term, they should keep a sense of perspective. By and large councils knew this downturn was coming and have planned for it. The pressures are real but councils are coping with them well."