This comes after the county council issued a ‘section 114’ notice last month – thought to be the first of its kind in nearly 20 years - banning expenditure on all services, except those protecting vulnerable people.
Leading local government figures have warned that multiple councils risked similar financial collapse.
Communities secretary Sajid Javid ordered an independent inspection of the authorities in January.
The report, Northamptonshire County Council Best Value Inspection, said the “new start” would be “best achieved by the creation of two new unitary councils” to provide all local authority services.
It added that “living within budget constraints is not part of the culture” of the current council and that “a way forward with a clean sheet, leaving all the history behind, is required”.
The independent inspection, carried out by Max Caller, said that all current district and country councils in Northamptonshire should be dissolved.
Caller said that even following the issue of the section 114 notice last month, “the council still appears to struggle to take the necessary decisions at both member and officer level to control and restrain expenditure to remain within budget constraints”.
The councils should be established following elections to be held in May 2020 and be in operation commencing at the first annual meeting, the report said.
In the meantime, Javid should “give serious consideration” to how the services in the county should be run.
The report said: “Given the significant challenges that the council and its officers face, the secretary of state should give serious consideration to [the council’s] services, with the exception of planning, being run in some configuration by commissioners with the full powers of the council to maintain the position in a safe, lawful and value for money way whilst the shadow authorities work to establish the proposed new unitary councils.”
The council’s financial troubles began following an Ofsted inspection into its children services in 2013, which meant emergency money had to be put into the department, leading to the local authority losing “tight budgetary control”, Caller said in the report.
Earlier this month, the council passed a revised budget in response to an advisory notice issued by the council’s auditors KPMG, warning that the initial budget was illegal.
