THE Government could take over running Chester-le-Street's council housing in the wake of a damning report that said it was failing.

The Labour-run district council was given a rock-bottom rating after its second inspection in 18 months by the Audit Commission. The housing service, which is responsible for 5,300 council homes in the town and surrounding villages, was given no stars - the maximum is three - by inspectors in September last year and was said to be unlikely to improve.

The commission's Housing Inspectorate has re-visited the Civic Centre and found that the council is still giving a poor range of services to its tenants, some of which have deteriorated further.

The council, a Labour stronghold for several years is, says the commission, failing in its legal duty to improve its service. It will now recommend that Deputy Prime Minister John Prescott, Secretary of State for Local Government and the Regions, intervene directly. It could mean that Chester-le-Street, one of the country's smallest councils, is the first to have its council housing run by central government.

North Durham Labour MP Kevan Jones, a critic of councils in his constituency and supporter of a unitary council and regional government, said the report was a 'damning indictment.'

The report said the council missed potential funding of £2m because it did not have an effective housing strategy. The council might have to make cuts because its management of bad debts from tenants is poor.

It also highlighted the fact that council tenants, including the sick and elderly, have paid the entire £700,000 cost of town centre CCTV since 1996 - even though it benefits everyone.

Funding problems have not been tackled and the council has had to suspend its repairs services repeatedly. The council, says the report, also 'neglects the needs of vulnerable people although it claims this to be a corporate priority' and it has failed to act on recommendations to improve the service.

Mr Jones, who has received many complaints from tenants, said: "The report is a damning indictment of the way the housing department has been run. I will fully support intervention to ensure that my constituents get the best service, which they deserve.''

Long-serving council leader Malcolm Pratt, who plans to stand down in May, said improvements had been made and new managers and consultants appointed.

"If the Secretary of State finds it necessary to intervene then we will be more than happy to give our total support to whatever decision he makes. It is worth pointing out that we are a small council with minimum resources yet we are currently involved with major housing projects in Ouston, Pelton and Pelton Fell.''

He added that the council's own tenant survey showed 78 per cent were satisfied with the housing service, the highest score in the region.