Deep cuts in public spending could cause what a think tank is calling a “tsunami of a public sector recession”. In a report, the New Local Government Network says inadequate investment in public infrastructure will hit road and rail projects, housing and new school buildings as well as hampering the modernisation of public services.

It also wants local authorities to have new revenue raising powers including more charges for service users and borrowing against their reserves. The report, ‘Capital Contingencies’ sets out how councils could raise alternative forms of infrastructure investment when the Treasury begins to clamp down on orthodox capital expenditure.

The report says that with Treasury plans to halve capital expenditure by 2013-14 and private capital now more limited for the public sector, councils will need a stronger approach to partnerships and will have to rethink regeneration and construction plans. As well as new revenue streams, it suggests a new approach to lending to treat the Private Finance Initiative on a level playing field with other local capital finance models and a new collective fund for council reserves.

Chris Leslie, the Director of NLGN is calling on all political parties to think hard before making large scale cuts in capital grants and loans and says anxiety over the level of public sector debt is set to define the next decade of public service provision. He said councils were the principal agents in infrastructure development and added: “The constitutional circumstances which have created a local government community almost totally reliant on Whitehall now risk leaving much of our public services and facilities bereft of investment.