Local authorities are due to see their funding slashed by pound;1 billion over the next two years, after the Government massively underestimated the number of schools expected to convert to academy status.

The Department for Education revealed in January that it was planning to recoup pound;413 million from councils in order to help academies pay for services previously provided by local authorities, prompting an outcry from council leaders.

But the latest projection from the Department has more than doubled to between pound;940 million and pound;1.055 billion, due to the higher than expected number of schools looking to become academies.

Up to 170 applications are currently being received each month, and as many as 5,000 maintained schools are predicted to convert to academy status by March 2013.

Peter Downes, vice-president of the Liberal Democrat Education Association and an outspoken critic of the academies programme, said the massive cuts would be “disastrous” for local authorities.

The Local Government Association (LGA) warned it could lead to council tax rises and vital services being slashed.

David Simmonds, chairman of the LGA’s children and young people programme board, called for a complete overhaul of the “fundamentally flawed” calculations currently being used.

“A number of local authorities felt the original amount of money the Government planned to take away from their central functions to fund academies was excessive in relation to the savings that they were in practice able to make. It is very concerning that a further substantial top slice is now being contemplated,” he said.

“Councils . are quite rightly concerned about the significant pressure these proposals could place on council tax or other vital local services.”

Under current rules, funding is due to be cut from all authorities, irrespective of whether any of their schools have become academies.

Leicester City Council’s formula grant has been cut by pound;900,000, despite the fact that none of its schools has converted to academy status.

A spokeswoman for the local authority said: “The council . remains of the view that any top-slice in excess of the cost reductions occasioned by any academy conversions would be unfair. Clearly the greater any top slice, the greater will be the impact on the council’s overall finances.”

Mr Downes, former head of Hinchingbrooke School in Cambridgeshire, described the latest estimated cost to councils as “an astonishing figure in a time of national penury”.

“The effect on local education authorities could be disastrous,” he said. “It’s frankly embarrassing that they have miscalculated to such an extent.”

Mr Downes, also a county councillor, said academies were being overfunded through the local authority central spend equivalent grant (LACSEG) - a fund to allow them to buy in the shared services they no longer receive from local education authorities.

“This has created a bandwagon effect which is far greater than the DfE had anticipated,” he added. “It’s effectively a bribe to make the Government’s policy look successful. What we have got at the moment isn’t fair; it isn’t equitable.”

Russell Hobby, general secretary of heads’ union the NAHT, said: “The main concern is for maintained schools remaining within their local authority. The services provided to them would decline, simply because there is less money to go around, and there won’t be the same economies of scale if more schools become academies.

“In some areas, local authorities are pulling back from education and focusing on their core duties. I think we will see that some schools will really start to feel the consequences of that.”

In May, a group of 26 local authorities initiated a judicial review of the plans, arguing that they were in breach of Government guidelines.

The move was put on hold after education secretary Michael Gove agreed to review current funding arrangements. A consultation on the issue came to an end last week.

The consultation document says that the claw-back from councils across the board could be changed, so areas with more academies would have to pay back a higher proportion of funding, but warns this “would not provide the same level of certainty” for councils.

A DfE spokesman said: “The academy programme is expanding rapidly. Our job is make sure that funding for academies and maintained schools is fair and equitable in the long-term. We are now analysing the responses in detail.”

Original headline: LAs face pound;1bn cash black hole after academy blunder