The leader of a local council forced to ban almost all spending said she warned the government it was about to “fall over the edge of the cliff”.
Northamptonshire County Council said on Friday it had brought in a section 114 notice, banning new expenditure.
It insisted staff wages and spending on statutory services for protecting vulnerable people were unaffected.
Heather Smith, Conservative leader of the council, said: “We did warn that we would become unsustainable.”
She said: “We have been warning government from about 2013/14 that, with our financial position, we couldn’t cope with the levels of cuts we were facing.
“Before Christmas, I wrote to the secretary of state to say we were about to fall over the edge of the cliff because we can’t just increase council tax.”
A government spokesman said it had appointed an independent inspector to look at the council’s finances, adding: “This is a decision for the authority, and it would not be appropriate for us to comment while the inspection is ongoing.”
Speaking to Labour’s local government conference in Nottingham, the party’s leader Jeremy Corbyn said: “Austerity is unleashing chaos across our country, squeezing our local authorities and putting jobs, and the vital services they deliver, at risk.”
The council announced in December that it was looking to increase council tax by almost 5% as it sought to make savings of £34.3m.
It was then revealed in January it was considering selling its new £53m headquarters, which officially opened in October.
Last month, the government said an inspector would look into allegations of financial failings at the authority.
It is the first section 114 notice issued in more than 20 years but Prof Tony Travers, from The London School of Economics, believes others could follow.
He said: “I think there are others that are quite close to Northamptonshire’s position and, with so-called austerity continuing into the next decade, I would be amazed if Northamptonshire was the only council to get into these circumstances.”
Bob Scott, leader of the Labour Group on Northamptonshire County Council, said: “My only surprise is that a section 114 order has been issued just after an inspector has been appointed and started his work.”
The implications are due to be discussed at the full council meeting on 22 February.