THE Government has been accused of overseeing a "car crash" of local authority finances after a public spending watchdog found that ministers had only a limited understanding of the impact of funding cuts.

North-East council chiefs say a report by public spending watchdog the National Audit Office (NAO) confirms that the region's local authorities have been among the hardest hit by the slashing of grants to councils.

The NAO warns that one in six local authorities are not expected to deliver services within budget this year, and more than half of all councils are at risk of financial failure within the next five years.

Councils will see their Government grants reduce by 37 per cent between 2010/11 and 2015/16.

The NAO document, financial sustainability of local authorities 2014, concludes that those authorities most dependant on the grants because of high levels of deprivation - which include many in the North-East - have suffered most because of the cuts.

Last night, Darlington Borough Council leader Bill Dixon said the Government had not thought through its council cuts strategy.

"People of all parties have been saying the same thing and now a truly independent organisation is saying it too - we just can't go on like this.

"If the Government wants to reshape local government that's fine but this is local government review by accident and it's turning into a car crash.

"Changes to the way that vital services are delivered should be debated and agreed - it should not just be about slash and burn."

Durham County Council leader Simon Henig added: "It's a big issue that the Department for Communities and Local Government (DCLG) does not appear to monitor the impact of its cuts on service provision.

"Therefore it doesn't seem to know the situation that councils are in or how close they are to not being able to deliver core services - this needs to change."

The report was welcomed by the Association of North East Councils.

Chairman Cllr Paul Watson said it was essential that the Government looked ahead to the impacts of the cuts it is proposing in future years.

"North-East councils are continuing to make the case for fairness to be restored to the funding system that allocates resources based on need as well as incentives for growth.”

Although it says local councils have coped well with reduced budgets, the report adds that local auditors are increasingly concerned about the future financial sustainability of some authorities and their capacity to make further savings.

The report states that DCLG has a limited understanding of the financial sustainability of local authorities and the extent to which they may be at risk of financial failure.

DCLG was also criticised for failing to monitor the impact of funding reductions on services in a coordinated way.

In response, Local Government Minister Kris Hopkins said: “Every bit of the public sector needs to do their bit to tackle the deficit left by the last administration, including local government which accounts for a quarter of all public spending.

"This Government continues to deliver a fair settlement to every part of the country – north and south, rural and urban, metropolitan and shire.

“The reality is since 2010 budgets have been balanced, council tax has fallen by 11 per cent in real-terms and public satisfaction with local government has been maintained.

"But there is still much councils can do to cut waste and make sensible savings, such as using their reserves, making better use of surplus public sector assets, clamping down on fraud, boosting council tax collection rates and sharing back offices.”