A review of the Department for Communities' pursuit of austerity has revealed that, though local authorities appear to have coped well with cuts to government funding so far, the department itself has "a limited understanding of authorities' financial sustainability and the impacts of funding cuts on [local] services."

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The review, carried out by the independent National Audit Office revealed that "Some groups of authorities are showing clear signs of financial stress." Those working in rural regions suggest these areas are particularly at risk.

The Rural Fair Share campaign, led by MPs and backed by the Rural Services Network, has drawn attention to the disparities in funding allocations to local government in rural and urban areas, and looked into whether rural authorities face "additional and unavoidable" costs.

Government funding to local authorities will be reduced by 28 percent in real terms between 2010-11 and 2014-15, with more cuts on the horizon that are set to reduce spending by a total of 37% by the end of the next financial year.

Auditors said they are "Increasingly concerned about local authorities' capacity to make further savings," though senior ministers have restated their commitment to austerity.

Local authorities have tried to protect spending on social care services. Other service areas such as housing services (-34%) and culture and leisure services (-29%) have seen larger cutbacks.

While local authorities have tried to prevent cuts translating into reduced services, there is evidence that this has not always been successful and services have suffered in some areas. NAO said, "This was an outcome of policy decisions to tackle the fiscal deficit by reducing public spending, and for local authority funding to offer incentives for growth."

Even so, NAO found that the "[Communities and Local Government] Department's processes for assessing the capacity of authorities to absorb further funding reductions are… not sufficiently robust." Auditors said the lack of monitoring of impacts cuts are having on local authorities means the Communities Department may only become aware of problems and failures after they have occurred.

Nick Chase, head of rural insight at ACRE (Action with Rural Communities in England), commented on Friday that, "Our concerns centre on the issue of provision of services for rural communities. Given the evidence from the NAO, it looks very bleak for any additional investment into rural service delivery or the letting of more SLAs to small delivery organisations.

"The general thrust from government is that volunteers will pick up the slack for service delivery in rural communities and whilst there has always been a willingness here, we are beginning to pick up on volunteer fatigue. This is anecdotal but, nevertheless, apparent."

Upon the report's release this week, NAO head Amyas Morse commented, "The Department really needs to be better informed about the situation on the ground among local authorities across England, in a much more active way, in order to head off serious problems before they happen. It should be clear about the knock-on effect of the various funding decisions taken by departments in Whitehall."