George Osborne’s decision to axe the central government grant to councils over the next four years came in a comprehensive spending review that the Local Government Association (LGA) chairman, Gary Porter, a Conservative peer, described as a tragic missed opportunity to protect the services “that bind communities together, improve people’s quality of life and protect the most vulnerable”.

The chancellor had announced “a revolution in the way we govern this country” by giving town halls far greater fundraising powers, allowing them to keep 100% of business rates, rather than the current 50%, and increase council tax bills by 2% to pay for rising social care bills. But they will lose the grant worth £18bn across councils in England, according to the LGA.

Prof Tony Travers from the London School of Economics said Osborne’s changes were radical because they meant councils will only be able to increase revenues in the future by attracting more businesses to benefit from the changes to rates. He said it transformed town halls from “being a mini-welfare state into a local economic growth agency”.

But some of the most stretched councils warned that the changes would hit the poorest parts of the country hardest, where there were fewer businesses and taxpayers to make up for lost Whitehall grants.

The Labour leader of Newcastle city council, Nick Forbes, said the move would leave a £16m hole in his budget.”