Two children play in the shadow of a London tower block. This is Hackney, one of the poorest places in Britain, where a game of ball can be a welcome escape from the grim housing, poverty and neglect that has characterised the borough for decades. Next Tuesday in the unlikely setting of Claridge’s ballroom, this children’s playground in De Beauvoir Town will be auctioned off to property developers.Game over: This playing area on the corner of Downham Road and Ufton Road is being auctioned off by Hackney council

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The great Hackney pitch sell-off

It is among playing fields, urban grassland and open space that Hackney is selling in a desperate attempt to raise money. The sale has prompted outrage in a borough starved of amenities, and residents have begged for government intervention to stop what they say is a shameful disposal of Hackney’s family silver. They protest in vain.Glossy brochures have gone out to builders and speculators showing the opportunities available, for example, at the Somerford Grove estate in Stoke Newington. Here, a rare patch of grass and a solitary tree between densely-packed blocks of flats is being touted as a building site. It would, Hackney’s estate agent says without deliberate irony, be perfect for a block of flats. In Dalston another rare patch of grass is proposed as a site for three houses.

These all-too-scarce open spaces are vital lungs in a part of the inner city where light and air are at a premium. They are places that children, especially, need. But Hackney council is about to sacrifice them to the cause of trying to balance its books.

How could it come to this? The answer goes back decades, to the ideological blight of the Loony Left, factional in-fighting and corruption scandals that steadily bled the life out of the borough. Last May the council was taken over for the first time by New Labour. A group of moderates, led by a committed Blairite, Jules Pipe, promised a new beginning. But an Evening Standard investigation shows services have deteriorated still further and the financial position is at crisis point.

All this has happened despite massive sell-offs, a 10 per cent hike in council tax and cuts so severe Hackney is on the brink of failing in its statutory duties.

Nick Raynsford, Local Government Minister, promised last month to give the council £25 million of taxpayers’ money to shore up essential services. But even this – equivalent to almost £130 for every one of the borough’s 192,479 residents – is at risk of sliding into the bottomless pit that has swallowed countless millions.

The word countless is used advisedly. It is to Hackney’s enduring shame that during the past year it has doled out enormous sums without a shred of supporting documentation. Money has simply disappeared, money that was desperately needed. Where did it go?

Auditors did a check on a random sample of 47 individuals being paid from the £200million annual payroll. Employee files could only be found for 12 of the 47. They checked arrangements with outside contractors. On one £8million deal the council’s monitoring team couldn’t find the contract so no one was sure what they were supposed to get for the money.

In the bad old days of the Loony Left, Hackney was known as a soft touch for employees seeking pay-offs. In the past year two members of council staff hit on a way of streamlining this often onerous process. They made themselves redundant.

All over the borough people are feeling the squeeze. Among the worst affected are families with young children, hit hard by the closure and disposal of child and nursery facilities. The latest threat is to concessionary travel for the disabled.

The sale at Claridge’s is part of a mass disposal of assets which the New Labour council boasted would raise a potential £70 million. By November last year only £10million had been realised.

The council sought to reassure a government monitoring team and the auditor by saying further buildings and land it planned to sell this winter would bring in £ 30million. Expert opinion suggests this figure is wildly optimistic-It is believed the promised £70million could amount to no more than £30million, leaving a gaping £40million hole in the asset disposal budget.

Residents’ anxieties over the sale of assets are shared by district auditor Les Kidner. He has cautioned the council against wholesale disposals because it will need properties for future regeneration and ” unidentified future needs”. But the future seems to be the least of the council’s concerns as it pursues a hand-to-mouth existence.

For many Londoners, Hackney has long been thought of as another planet, an alien place best left to fend for itself. But no one can feel insulated from the unfolding tragedy that threatens to engulf it. Other London boroughs are already being asked for an extra £700,000 to make up a shortfall in Hackney’s contribution to the Mayor’s budget.

And it may be only a matter of time before the taxpayer is asked to pay for a rescue operation on an unprecedented scale.

Hackney has a debt of more than £700million that dates back years. It is costing around £30million a year to service and local action groups are about to launch a campaign that will call on the Government to write off the debt. If it can be done for developing countries, they say, it should be done for Hackney.

The Government is unlikely to set a precedent that will have prudent local authorities up and down the country crying foul, but there is a growing belief in Whitehall that the Hackney crisis will only be resolved with yet more handouts from the public purse.

While Hackney’s playgrounds were being selected to go under the hammer, the Labour group was agonising over one of its pet projects, a £600,000 scheme to create a landscape garden outside the town hall in Mare Street.

After months of pressure from opposition councillors and residents, this idea has now been dropped.