Bankrupt Croydon Council has agreed a record 15 per cent council tax rise after warnings a budget deadlock would leave the town hall facing legal action and cost the authority £20million a month.
Hundreds of protesters picketed the emergency meeting on Thursday night where councillors voted through plans that will add £235 to the average annual household bill from next month.
Last week the increase was rejected by 37 votes to 34 when Labour, Liberal Democrat and Green councillors objected to the minority Conservative administration's budget.
But after stern warnings on the failure to set a budget, the plans were voted through on Thursday with 34 votes for, three against and 33 abstentions.
During a three and a half meeting, councillors were warned that it would not be possible to send out council tax bills, at a cost of £20million a month, if they could not agree a financial plan.
Auditors Grant Thornton said failing to pass the budget would have "not only be unlawful, it would make a bad financial position worse and damage the council's reputation even further".
Croydon issued its third bankruptcy notice in two years in November.
The borough has asked central Government to write off £1.3billion of debts, including £500million accumulated in a series of failed commercial investments by the previous Labour administration.
Ministers gave the local authority permission to raise council tax by 15 per cent this year without the requirement of going to a public referendum.
Croydon's Mayor Jason Perry said: “I’m pleased that council has agreed this difficult budget which will help us deliver services for residents whilst taking much-needed action to fix Croydon’s finances.
“This is not a budget that I wanted to set, but it is a budget that will help us to protect vital services for our residents.
“No one wants to increase council tax, but the council is delivering £36m savings this year already - we simply cannot make further cuts and continue to deliver the services our residents need.
“We have demonstrated that we will not shy away from taking tough decisions.”
He added that an extra £2million will be added to a hardship fund to support the poorest residents.
The Government said it is "minded" to issue Croydon £224million in bailout loans. But a £540million debt write-off is still under discussion.
Croydon's budget was passed with 34 votes in favour, three against and 33 abstentions.
Leader of Croydon's Labour group Stuart King said: "Embroiling the council in a protracted deadlock scenario, with the consequences that a legal budget would not be set, is the last thing that residents in Croydon need at this time.
“Whilst Labour wholeheartedly disagrees with the 15 per cent council tax rise, we could not in good conscience repeatedly block the setting of a legal budget and plunge the borough into a Tory-made financial crisis."
