Crisis talks are to be held over financial problems at Oxford City Council that could see it run out of cash in the next financial year, writes Mark Templeton.

The new Liberal Democrat and Green Party administration say they have uncovered major holes in the budget set by the previous Labour group, which lost its 20-year grip on the council in last month's elections.

They add that if the council meets targets over the next year it will be left with only 1m in the bank. But it is the cost of homelessness in the city that could trigger the authority's biggest financial headache.

If charges for putting homeless families into bed and breakfast accommodation continue to soar above the 2m spent last year, the council will find itself without cash reserves.

Green Party spokesman Paul Ingram said: "We've been looking at the finances very carefully since we took over. "If we end up in the red that does not mean the council will come to a halt, but the Government could insist on our stopping services to save money. At this stage it's too early to say what those would be.

"We wouldn't be the first council in the country to go bankrupt, but it's a situation we are trying to avoid.''

Liberal Democrat leader Corinna Redman said she was calling a special meeting on July 11 to discuss the crisis. The first gap in funding was discovered within days of the Lib Dems' and Greens' announcement that they would form a joint administration.

Labour leader Alex Hollingsworth said he understood that everything was on schedule to meet targets, including the budget for the homeless.

He said: "All three political groups reached a budget with the same bottom line, but issues such as the rising cost of homelessness are outside anyone's control."