Government neglect of deteriorating local authority finances leaves councils with no choice but to prepare for deeper cuts to already depleted services such as libraries, roads and Sure Start centres, a cross-party committee has said.

The housing, communities and local government select committee said continuing uncertainty over budgets meant councils in England would have to “prepare for the worst” and make further service cuts and redundancies over the next few months.

Ministers’ continuing failure to tackle the council funding crisis meant there would be no let-up on a nine-year squeeze on town hall budgets, which had forced spending reductions of more than 40% in areas such as highways, housing, transport and culture, the MPs said.

“This constant stress on local government is now compounded by a failure to even set out how much money they will be allocated in the next financial year,” said the committee chair, Labour’s Clive Betts.

“The time has come for the government to get real with local government funding. They must make clear exactly what services they expect to be provided and dedicate sufficient funding for this to be achieved. People expect well-maintained roads, regular refuse collections and cultural services, yet funding rarely stretches beyond meeting the urgent needs of social care services.”

This month, the Treasury announced that because of delays caused by Brexit, local government would get a stop-gap one-year funding agreement in place of the planned three-year review.

The committee said this uncertainty was causing problems for councils, who were hamstrung by the ministerial failure to deliver on promises to reform social care funding or make clear how plans to fund councils primarily through business rates would work.

“Without clarity about funding in 2020, some local authorities will need to prepare for the worst, making decisions which may unnecessarily reduce spending and represent poor value for money in the longer term,” it said.

Although Boris Johnson has promised to tackle the adult social care funding crisis, there is little sign this could happen soon and councils fear the one-year settlement will in effect lock austerity into town hall budgets for a tenth successive year.

The Local Government Association said last month that deteriorating council finances meant one in five councils in England may be forced to impose drastic spending controls to stave off bankruptcy over the next few months.

Northamptonshire county council, which effectively collapsed into insolvency last year, recently announced that despite drastic measures designed to make it financially stable it faced a £35m budget gap from next April, almost half of which reflected increased demand for statutory services and inflation costs.

The committee called for an injection of £4bn to restore council funding levels to 2001 levels, although it noted that rising demand for adult and children’s social care meant that even this sum would not be sufficient to cover a predicted £5bn gap between town hall funding and needs in 2020-21.

“If HM Treasury wants local government to continue providing the services it currently does, it needs to provide local government with a significant real-terms increase in its spending power,” the MPs said.

Over the longer term they urged a broader overhaul of local authority finance, including the creation of new council tax bands, unchanged since 1991, to reflect rises in housing values, as well as a review of the complex and risky plans to fund councils through business rates.

A spokesperson for the Ministry of Housing, Communities and Local Government said: “We’re providing local authorities with access to £46.4bn this year – a real-terms increase. Ultimately, councils are responsible for managing their own resources and we are working with local government to develop a funding system for the future.”