By Paul Burnell BBC File On 4

Not everybody is celebrating Liverpool's Capital of Culture year.

Liverpool is having a year long party as European Capital of Culture, but not everybody is celebrating.

For people like Mary Robinson, 80, the council is spending too much money in the wrong places and cutting cash from vital services such as respite care for her 104-year-old mother.

Like other families she depends on two specialist care homes, set for closure as the council tries to balance its books.

"Why save money on old people, the council should be saving money on the Capital of Culture, the people they are harming are not interested in the Capital of Culture," she told BBC File On 4.

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Joyce Provost, whose 77-year-old mother suffers dementia, added: "The old people built this city...they're not being considered, I don't think it is fair."

The Liberal Democrat council, says it is determined to boost its regeneration agenda by presenting itself as a confident, capable city and funding the Capital of Culture celebrations is a key part of this strategy.

However Jane Kennedy, Labour MP for Liverpool Wavertree and Financial Secretary to The Treasury, believes poor financial management is at the heart of the city's problem.

The city [Liverpool] is in danger of being described as a basket case Jane Kennedy, Labour MP, Liverpool Wavertree

"Some of the most vulnerable people in the city are going to see the services they rely on, cut."

She added: "We have reached such a point where the resources are so chronically adrift that the city is in danger of being described as a basket case."

In a city where the Liberal Democrats have held power for 10 years, it might be expected that Labour politicians have a vested interest in criticising the administration.

But the same cannot be said for the independent watchdog responsible for monitoring public sector spending.

The Audit Commission's latest report deemed Liverpool City Council the worst performing council in the country, awarding it one star - the lowest rating.

District Auditor Tim Watkinson said he warned the council for the last three years about its finances.

"In the previous two years, the council was recognising the need for improvement but frankly in my view hadn't taken enough action to deal with the issues which I had been raising."

Expensive pay-offs

To run the 08 year, the council set up Liverpool Culture Company as a wholly-owned subsidiary in 2003, but until last year it was dogged by problems, including a series of resignations from executives with expensive pay-offs.

The biggest problem however, was the discovery that the council had no agreed financial plan to cover �20m worth of spending on this year's celebrations.

"I have been making recommendations to the council about improving its long term financial planning... and of course part of that would be the budgeting and the planning in financial terms for the Capital of Culture expenditure," said Mr Watkinson.

He added: "There was an element of funding for paying for Capital of Culture for 2008 some �20m and the council didn't have a plan for finding that �20m as part of it setting the budget for 2008/9."

�20m shortfall

It emerged that the �20m was part of an overall budget shortfall of �62m.

The district auditor took the unusual step of using statutory powers to make recommendations and force the council to respond in public.

A legal budget was finally set and the district auditor and others are working with the authority to plan their way out of the current difficulties.

We have delivered the largest festival - cultural festival - ever in the history of European Capital of Culture Coun Warren Bradley, leader Liverpool City Council

Earlier this month the voters passed their own verdict when the Lib Dems lost their overall majority only to cling to power thanks to the defection of an independent councillor.

Lib Dem leader Warren Bradley, who has faced stern criticism about the crisis, also had to fight off a leadership challenge.

Asked why the council did not have a war chest to fund the one of the most important years in the city's recent history, Coun Bradley said: "We have delivered the largest festival - cultural festival - ever in the history of European Capital of Culture because we realised how important it could be to drive regeneration in a city like Liverpool.

"We passed in March this year, a legal, balanced budget with the �20m covered."

However this has come at a price with two care homes due for closure and the council announcing a package of measures including savings of nearly �35m on what it describes "internal efficiencies and funding changes" and "service reviews".

He is also adamant that the council's financial woes are not affecting its most vulnerable citizens.

"We've achieved a lot over a very short period we've still got lots of challenges."

'Robust finances'

"As leader of the city council, I'm not going to forget about those challenges to squirrel away millions of pounds for the future because something might happen," he added.

"What we've got to do is have a medium term financial plan and a robust financial system but we've also got to carry on dealing with the challenges to the most vulnerable people and there are lots of vulnerable people in this city."

Coun Bradley says the council has tried to reverse 40 years of economic decline in the last 10 years and the work is still in progress.

Regeneration investment is changing the face of the city centre with the Queen officially opening �1bn worth of leisure, retail and residential development, last week.

Liverpool has undergone a major regeneration

But one of the city's leading academics has a stark warning that the city is ill equipped for the tough times ahead.

Professor David Robertson, head of the Public Policy Institute at Liverpool John Mores University, is doubly pessimistic with nearly �7-12bn worth of Central Government and European funding due to come to an end.

He added that the city's regeneration had been "very frothy, focussing upon tourism, short term spending and increasing spending on shopping.

"They are the first things to go in an economic downturn."

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