Local authorities are urging the Government to lift the cap on council tax bills in a bid to close a looming funding gap that will leave them billions of pounds short to provide affordable homes, school places and social care.

The Local Government Association (LGA) called for the change as it revealed local councils are facing a £5.8bn funding gap by the end of the decade as a result of a 75 per cent drop in core central government funding between 2015 and 2020.

Almost half of councils in England – 168 local authorities – will receive no core central government funding by 2019/20.

LGA chairman Lord Porter is expected to use his organisation’s annual conference in Birmingham to demand that government ministers act to fill the funding void by allowing councils to raise council tax.

Under laws introduced by the Coalition government in 2011, councils currently have to hold a local referendum if they want to increase council tax by more than 2 per cent.

The LGA also wants councils to be able to keep all of the £26bn they collect each year in business rates – a proposal that was included in the Local Government Finance Bill that was close to being passed in the last parliament but was thrown out when the general election was called. It was not reintroduced in the Queen’s Speech.

Lord Porter will say councils should be at the “front of the queue” for more funding if the Government decides to relax austerity. Ministers are under mounting pressure to lift a cap on public sector pay rises as part of a move away from the belt-tightening policies pursued by David Cameron and George Osborne.

The LGA claims councils would not have enough money to plug the funding gap even if they closed all children’s centres, museums and leisure centres, turned off every street light, closed all discretionary bus routes and stopped maintaining parks and filling in potholes.

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In his speech, Lord Porter will say: "Councils can no longer be expected to run our vital local services on a shoestring.

"We must shout from the roof tops for local government to be put back on a sustainable financial footing.

"Local government is the fabric of our country, even more so during this period of uncertainty for the nation.

"Councils are the ones who can be trusted to make a difference to people's lives.

"To build desperately-needed homes, create jobs and school places, provide the dignified care for our elderly and disabled and boost economic growth.

"If austerity is coming to an end, then we need to make sure councils are at the front of the queue for more money.

"Only with adequate funding and the right powers can councils help the Government tackle the challenges facing our nation now and in the future."

Responding to the claims, a Government spokesman said: “We’ve given councils vital certainty to plan ahead thanks to our historic four year funding settlement which makes £200 billion available, and we’ve eased pressures on specific areas like adult social care funding through a new precept.

“Ministers have committed through a manifesto pledge to further help local authorities control more of what they raise and we’re working closely with the LGA to agree the best way to achieve this.”

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They refused to say whether ministers were considering allowing councils to raise council tax by more than 2 per cent without the need for a referendum.

Local government has suffered years of funding cuts as part of the austerity policies pursued since 2010. A survey conducted by the Local Government Information Unit (LGIU) think-tank earlier this year found three-quarters of councils had little or no confidence in the sustainability of local government finances, while more than one in ten said they were in danger of having to breach laws on the core services councils must provide.

40 per cent of all councils said they were having to make “cuts in frontline services, which will be evident to the public.”

The fall in funding for local councils has come under mounting scrutiny in the wake of the Grenfell Tower disaster.

Critics including Jeremy Corbyn have blamed government cuts for the disaster. Speaking at Prime Minister’s Questions, the Labour leader said: “When you cut local authority budgets by 40% we all pay a price in public safety – fewer inspectors, fewer building control inspectors, fewer planning inspectors, we all pay a price.”

“What the tragedy of Grenfell Tower has exposed is the disastrous effects of austerity, this disregard for working-class communities, the terrible consequences of deregulation and cutting corners,” he said.