Crucial services will be cut and jobs lost because of a Government tax freeze, claims city council leader Ric Metcalfe.
His Labour-run authority, which has a £14m annual services budget, faces a £3m shortfall by 2016/17.
He wants to help plug that gap with a 3.5 per cent rise in council tax, which would cost the average Lincoln family an extra 17p per week.
But Karl McCartney, Lincoln's Tory MP, said his party was protecting vulnerable people from unnecessary rises.
Mr Metcalfe says the nationwide cap on council tax rises, along with a reduction in income from business rates and less Government grant to run the benefits system, signals the death knell for local government.
He said: "We are being hit from all sides by the Government. We have now reached the position where balancing the books through efficiency savings is not going to be the answer, although we continue to look for these.
"We have not got local government anymore, whatever the Government claims about having handed back to councils more power and autonomy."
Mr Metcalfe argues that new funding rules imposed upon councils hampers their ability to prioritise local spending.
"We have been in a very difficult position for several years now and it looks as if this is going to continue for the foreseeable future," he added.
"Since 2010 we have already taken about a 28 per cent cut in funding from central Government.
"We have already taken £2.5 million out of our budget through cuts and efficiencies, limited income generation and joint working with North Kesteven.
"Over the next period of our financial strategy I don't think you can exclude the possibility that we will be a smaller organisation.
"There will also be some major issues as to whether we are still able to provide all of the services we currently do.
"We cannot go for the 3.5 per cent increase in council tax we have planned for from next April without a costly referendum.
"What turkey is going to vote for Christmas?
"The position we are in is that we are facing falling income – including from planning and building control fees and car parking – related to the recession but rising demand for services.
"On top of that, in the name of localism, the Government saying it is giving councils powers to do all these things, is completely smoke and mirrors.
"We have started to build five new council houses in Lincoln and we have plans for more.
"But how on earth can we help grow the local economy with these pressures upon us?"
The changes to city council finances will have a knock-on effect on other authorities' income.
The authority says the county council can expect to lose £200,000 in its precept while the police will see a drop of £35,000.
Karl McCartney, Lincoln MP defended the Government’s position by saying: “I am sorry – though not surprised – to learn that leading elected Labour members at the City of Lincoln Council are unhappy about the Conservative-led Government’s council tax freeze.“However, after the doubling of council tax bills under the previous Labour Government, millions of hard working people up and down our country are extremely pleased and relieved that their council tax bills will not be rising this year.“Spending on council tax benefit also doubled in the years under Labour and welfare reform is vital to tackle Labour’s budget deficit. “We must not forget that under the last Labour administration, more taxpayers’ money was being spent on benefits than on defence, education and health combined.“Our reforms will localise council tax support and give councils stronger incentives to support local firms, cut fraud, promote local enterprise and help people into work. “We are ending Labour’s something for nothing culture and making work pay.“We have protected pensioners from any change as they cannot be expected to go back to work and have fixed incomes. “Pensioners who have saved and worked hard all their lives deserve dignity and security in retirement.“I am in politics to support people who work hard.” and want to get on in life – the strivers of Britain. “In the process, I want to banish Labour’s something for nothing culture that has done so much damage to our country.”