The Local Government Association (LGA) said yesterday local government staff will not be offered a pay rise for 2012/13.
Sarah Messenger, LGA head of workforce, said: "This has been a very difficult decision to make but it is the right one for council tax payers and the workforce as a whole. A combination of rising costs and shrinking local government funding means councils were left with little choice. Increasing pay would mean more job losses and cuts to the services people need.
"Today's announcement represents an unprecedented third consecutive year of pay freeze and we recognise the frustration which will be felt by the workforce. While the financial outlook for councils is bleak, we are keen to begin discussions with the unions on a package of reform of pay and conditions that may enable us to avoid a fourth year of pay freeze in 2013."
The news came the same day RBS, which is 82% owned by the state and announced an attributable 2011 loss of £2 billion, announced its investment bankers would share a bonus pool of £290 million.
Unite national officer for local government, Peter Allenson said: "The two faces of unequal Britain were once more on display today with the LGA's decision not offer a pay rise next year - yet investment bankers at the taxpayer-owned RBS are drinking at the trough of unbridled bonuses worth hundreds of millions of pounds.
"Local government in Britain - education, refuse collection, social care services and libraries - is the bedrock of a civilised society - but those that provide these vital services are bearing the brunt of a decade of below inflation pay increases and also pay freezes. It is effectively a pay cut and this is the third year of a pay freeze.
"Starving the wages of local government employees is self-defeating, as they spend money in their local economies. They support their local High Streets and generate employment every time they spend money in their communities.
"Yet, this 'we are all in this together' coalition' conveniently turns a blind eye to the continuing champagne-fuelled City bonus culture."