This report is the second in a series of Audit Commission reports looking at how local authorities are responding to the 2008/09 recession.
The report finds that local and national government have made a positive initial response to the recession, but it warns that councils should prepare for worsening social impact as unemployment rises.
Demand for benefits, welfare and help with debt are growing, and social problems such as domestic violence and mental ill-health are expected to follow as the recession deepens.