Redenhall with Harleston Town Council has spent all its budget, plus its £70,000 reserves and may be forced to pass on the bill to council tax payers.

A source at South Norfolk Council, which is offering financial advice to the town council, said: "I am told that if the council tax comes in at the upper end of the figures that have been mooted, then Harleston could have the highest parish precept in the country."

The town council part of the council tax on a Band D property is currently £92 but would have to rise to between £270 and £300 if residents have to meet the shortfall.

Town councillors have discovered that over the past five years the council has been dipping into its reserves, which are for emergency use, to pay for things that should have been more accurately budgeted for, such as street lighting.

John Fuller, chairman of South Norfolk Council, said: "We are in uncharted territory.

"I am not aware of any other town council that has gone bust before. I have asked officials to go back and consult the statute book."

One option is for South Norfolk Council to bail out Harleston Town Council but Mr Fuller said he was not sure if this was possible, and if it was, what terms it would have to be on.

Town council chairman Sue Kuzmic said she and other councillors she has spoken to had not been aware of the dire financial situation.

"We expected to have about £70,000 in the reserves but £40,000 of it wasn't there," she said.

"It was used over and above the precept last year. It is all accounted for, nothing has gone missing but we have had completely unrealistic budgets for the past five years."

"The town council has made mistakes in the past by eating into financial reserves in an effort to keep the council tax down."

The remaining £30,000 in the reserve account has already been spent on topping up the general budget.

Mrs Kuzmic said members of the town council have accepted joint responsibility for the loss and were busy working on a rescue plan.

In the past year, the town council has taken on responsibility for the town's car parks and leisure centre but Mrs Kuzmic said this was allowed for in the precept figure the council had set but she added: "When we took these on, we had no idea the reserves were so low."