Councils and public sector workers should prepare themselves for “considerable pain” as funding cuts of £500m begin to take hold from next year, the Welsh spending watchdog has warned.

Auditor general for Wales Gillian Body said a “radical” reform of the entire system was needed, adding that slow, piecemeal change would not come close to generating the savings needed to meet the impending squeeze on resources.

Drawing on a five year study by the Wales Audit Office, she said: “If they (public services) carry on with business as usual, they will simply run out of money.”

Spending on devolved services to the country has risen by 5.9 per cent in the last five years - from £12.1bn to £15.2bn.

The coming cuts will be preceded by a modest budget increase of £500m. The same amount will be subtracted the following year, the first in a predicted overall reduction of £1.5bn.