The report, Local Government Finance in the Pandemic, says that without a long-term financial plan for the sector, the majority of councils will be forced to make financial cuts.
The survey found that 94 per cent of respondents from single-tier and county councils and 81 per cent from districts expect to reduce service budgets.
Some 73 per cent of respondents from districts and 46 per cent of single-tier and county councils said they had either already used reserves or planned to this year in order to address COVID-19 pressures.
Councils have also expressed fears that the cost of COVID will be long-term: only one in five single-tier and county council respondents and 15 per cent of districts said their finances would return to pre-pandemic levels in the next two financial years.
Using the Ministry of Housing, Communities and Local Government’s own metric for assessing financial risk, the NAO said 6 per cent of councils were in the high-risk category and 27 per cent in medium-risk.
Chair of the House of Commons’ Public Accounts Committee, Meg Hillier, said: “Local authorities were already over-stretched and now, with reserves depleted, many will have to slash service budgets to balance their books.
“The Government must enable them to continue delivering vital services in the coming years, when they will be sorely needed.”