Council spending on local services has fallen by more than a fifth since 2010, according to a report from Britain’s leading independent economics thinktank.

In a reflection of the austerity drive imposed on local authorities by Conservative-led governments during the past decade, the Institute for Fiscal Studies said spending on services in England had fallen by 21% between 2009-10 and 2017-18.

In a sign of the increasing difficulties facing local authorities across the country, the leading tax and spending thinktank also said the funds available to councils would become increasingly inadequate in the 2020s, rendering the current financing system for the country’s local authorities through council tax and business rates unsustainable.

David Phillips, an associate director at the IFS, said: “Current plans for councils to rely on council tax and business rates for the vast bulk of their funding don’t look compatible with our expectations of what councils should provide.”

The shifting demands of an ageing population mean the current 3% cap on annual council tax rises would mean adult social care would require 60% of local tax revenues within 15 years, up from 38% now, according to the report.

Phillips said a national debate was required on how much citizens would be willing to pay for services. “Without it, we will default to a situation where the services councils can provide are gradually eroded without an explicit decision being taken.”

The warning from the IFS comes as growing numbers of English councils come under intense funding pressures because of central government cuts and increasing demands on services over the past decade from the ageing population.

Conservative-controlled Northamptonshire county council declared itself effectively bankrupt in February last year. Nine months later the council was given a de facto bailout when the government gave it permission to sell its HQ and use the £60m proceeds to fund day-to-day services.

The IFS report found the steepest cuts in council spending had come in areas such as planning, development and housing services, with reductions of more than 50%. The amount spent on culture and leisure, as well as areas such as highways and transport, has been cut by more than 40%.

Cllr Richard Watts, who chairs the Local Government Association’s resources board, said councils in England would face an overall funding gap of £8bn by 2025. According to the LGA, councils will have lost almost 60p in the £1 from the central government for local services in the decade to 2020.

“As this report highlights, pressures continue to grow in children’s services, adult social care, and efforts to tackle homelessness,” Watts said. “This is leaving increasingly less money for councils to fund other vital services, such as the maintenance of parks, certain bus services, cultural activities and council tax support for those in financial difficulty to try and plug growing funding gaps.”

The IFS report showed the cuts since 2010 had been larger in poorer parts of the country, echoing existing research that has shown northern councils and urban areas have been hardest hit. It said spending per head in the most deprived fifth of councils had fallen from 1.52 times that of the least deprived areas in 2009-10 to 1.25 times in 2017-18.

The thinktank said ministers were presented with a big choice: either authorities are given additional money to enable them to continue providing existing services, or the government should be upfront with voters that councils cannot afford to maintain the same services they currently provide.

A spokesman for the Ministry of Housing, Communities and Local Government said: “We are investing in Britain’s future, and this year’s local government finance settlement includes extra funding for local services.”