Gateshead and Middlesbrough councils warn of 'tough decisions' on public spending

• Rachel Bullock reports

A North East council says it is facing a further squeeze on its local authority budgets, despite 'increased flexibility' in the amount of council tax it is able to collect.

In Westminster, Chancellor Jeremy Hunt outlined £55 billion in tax hikes and cuts to spending, confirming the country was once again in recession.

Under new rules announced by the Chancellor, councils will be able to raise council tax by 5% without the need for a local referendum if they have social care responsibilities.

He said the move "will give local authorities greater flexibility to set council tax levels based on need, resources and priorities of their area, including adult social care."

However even if their council tax receipts do go up, many are having to look harder at the services they are able to provide with larger shares of their budgets having to be spent on core services such as adult service care.

Gateshead Council leader Martin Gannon says the local authority's funding from central government has dropped by £179 million since 2010.

He said: "A 1% increase in council tax in Gateshead raises £870,000. So it's impossible to raise council tax to compensate for the loss of government grant.

"We face an enormous shortfall in funding. In this year, because of inflation and increased energy costs, we're already running a deficit of about £6 million on this year's budget. We used £10 million of reserves in this year's budget, which isn't sustainable and we face further funding cuts next year.

"Unless government steps forward and increases the funding to local government, then we have to support our services and that's going to involve increases in council tax."

The council is currently holding a consultation on proposals that could see Gateshead Leisure Centre close.

• Councillor Martin Gannon, Leader of Gateshead Council

In September, Middlesbrough council confirmed an overspend of £9 million, attributed to wage increases, rising inflation and higher demand placed on children's services.

Elected mayor Andy Preston said a "tough, slow few years" lie ahead - but that central government simply has 'nowhere else to turn' to make savings.

He said: "We're going to see councils going bust. That's not good for people. Our income, the money we've got coming in is shrinking and shrinking and shrinking and the money going out is growing and growing. So we're in a really tough spot.

"We really do not want to jack up council tax so we have some really tough decisions to make. I'm talking to community groups, I'm talking to politicians, I'm talking to businesspeople to see how we can work together to get through this."

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