Takeover threat at debt-hit London council

The Government was considering the unprecedented step last night of taking direct control of a Labour-controlled council after a report found its finances were "out of control".

Hackney Council in north London, which has been on the brink of collapse for months because of a multimillion-pound deficit, faces the sanction after an investigation by the Audit Commission. The commission urged Stephen Byers, Secretary of State for Transport, Local Government and the Regions, to intervene to ensure services were not put at risk. Although governments have intervened to rescue education services, no council has faced across-the-board intervention.

The commission recommended that Mr Byers use his powers to tackle Hackney's "deep-rooted" problems. Its report said the council's finances, forecast to be in debt by up to £21m, were "demonstrably worse" than anticipated.

Hit by strikes by unions, ballot-rigging and riven by political in-fighting, Hackney has become a byword for poor council services in recent years. After a split within its ruling Labour group, it had no party in overall control for several years and only returned to Labour this year.

Hackney claims its problems were triggered by the failures of the authority's revenue and benefits service, which had been contracted out to a private company until April. But the commission said the council lacked the management to procure services effectively and its need to sell assets presented a substantial risk to its finances.