Central government funding cuts will force councils to dust off their more radical plans to close children’s centres and libraries – while giving them an opportunity to raise money locally

Council executives returning to their desks this week will have to shake off any residual festive spirit and face up to the toughest cuts their sector has faced in a generation. A little over a week before Christmas, ministers announced real terms cuts of nearly 7% to local government’s spending power. That’s on top of five years of already deep cuts, and the pain is frontloaded. The next two years are going to particularly hurt, as service levels are reduced and taxes start to rise.

To see the real impact of these cuts, look at which services are going to be affected. One southern county council, faced with bigger than expected cuts for 2016, has started dusting off savings proposals that were previously considered too radical. They include closures of children’s centres, libraries and a fire station. Highways repair budgets could be slashed, support for the voluntary sector may be further reduced and help for disabled children substantially scaled back. Even this does not quite fill the council’s projected budget gap.

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At the same time, council tax will start rising, having been held down for years by political pressure and special grants from Whitehall. Ministers have realised that letting council tax increase is a relatively painless way to find more money for overstretched social care budgets. Councils can already raise their tax by nearly 2% without holding a referendum, and they can now increase it by an additional 2% to meet social care costs.

The impact could be felt rapidly. Council tax rose by an average of about 1% in 2015, but the Office for Budget Responsibility has projected that it will more than double to nearly 3% from April. Whether local councillors will want to implement such a big increase remains to be seen. In some poorer areas the pain of putting taxes up will not be worth the meagre financial gains: a 2% rise can be worth as little as £500,000 for some local authorities.

But this is not just a story about paying more and getting less in return. Behind the scenes, 2016 will see most councils plugging away at long-term transformation plans that will change the way services are delivered. Many authorities have huge ambitions for digital public services, making many of their back office staff obsolete by persuading residents to do everything from paying tax to applying for social care online. London, for instance, currently has 32 different boroughs collecting its business rates and council tax. It is entirely possible to do this with a single website.

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Despite pressure on preventive spending, councils are continuing to invest huge amounts of energy in their relationship with the NHS. This will be the year when Greater Manchester and London implement forms of healthcare devolution, moving money from acute hospitals into local schemes that keep people fit and healthy. Some councils are taking inspiration from the government’s troubled families programme, despite big concerns about claims of its success, and combining all of their social care, housing and community services into a single “department for deprivation”, focusing scarce resources on solving the problems of the poorest.

Finally, councils will simply stop doing things. Parks, green spaces and street lighting are high up the list of services that are at risk, closely followed by the remaining smaller libraries. So communities will need to take on more responsibility before services are lost forever. Many local authorities need to invest more effort in their relationships with the community sector if this is to happen.

The outlook for local government in 2016 is tough, but longer term there are glimmers of light. If Whitehall’s projections are right, then council spending bottoms out at around £42.7bn in 2017/18 and then starts to rise a little. While central government grants will largely end, council tax and business rates will grow, allowing ministers to claim that councils will be spending more in cash terms at the end of the decade than they do now.

With business rates due to be devolved next year, councils will find themselves entirely funded by local sources of revenue. That money will have to stretch further as councils take on new and often poorly funded responsibilities as part of the government’s devolution agenda. This shift towards greater local funding and responsibility is hugely challenging, but it is also a big step in the right direction for over-centralised England. The coming year will probably not feel very different from the previous five, but make no mistake, what is happening to local government in the longer run is seismic.

Simon Parker’s latest book, Taking Power Back, is available from Guardian Books, priced £14.99