The Audit Commission had found the authority was in severe financial trouble, had a culture of bullying, poor leadership and a problem with empty council houses.

Last week the Hull North MP Kevin McNamara said the report was flawed and inaccurate, but officials stand by their findings.

If the watchdog believes there has not been enough improvement, then Whitehall officials could be brought in to run the authority.

Criticisms were also made of the way cash raised from the multi-million pound flotation of the city's telephone company, Kingston Communications, in 1999 had been spent.