The county council sought permission to borrow £18.5 million to spread the impact of a claim and associated court costs arising from a factory fire in 1990. The factory's insurance company won a High Court ruling that the fire service, and therefore the council, was negligent. The council is appealing against the ruling.
A council spokeswoman said paying legal costs and £16m compensation had virtually exhausted its reserves, leaving it with little to cushion an anticipated £21m gap next year between its cap and the spending needed to maintain services. She said the severity of cuts meant councillors would start the process next month, well ahead of the normal budget round.
Council leader Mike Hancock, describing the DoE announcement as 'another nail in the coffin', said the council is being punished for building up reserves.
A DoE spokesman said the loan required Treasury approval as it would have increased the public sector borrowing requirement and ministers felt a strong enough case had not been made.
'They have already paid it and they are appealing. We will be looking at what happens over a period of time,' he added.