The Audit Commission report into Hull forecasts an overall deficit in the council’s housing revenue account (HRA) by March 2006.
Roy Irwin, the commission’s chief inspector of housing, said urgent action was needed before HRA reserves were exhausted. The law says that local authorities must not allow their HRAs to go into deficit.

Irwin said: “Increasing rents is simply not an option.” The city council has already determined the maximum rent increases for 2002/03 that can be levied without suffering major subsidy loss.

A spokesman for the Local Government Association said Hull council would enter “uncharted waters” if its HRA registered a deficit. It is unclear what action would be taken if it happens, he said. “Nobody is in a position to do anything other than the council themselves.

“I would be surprised if action is not taken to contain housing expenditure from here on in.”