North East Lincolnshire councillors voted against a proposed increase in council tax.
At a meeting of the full council on February 22, the proposed budget which included an increase in council tax of 4.98% was rejected by 20 votes to 16.
Councillors will now have seven days to propose any alternatives to the budget to council officers.
Full council will meet again on March 1 where the original budget and any amendments will be voted on.
The council’s budget must be set by March 11.
The cabinet recommended an increase of 1.98% in the general council tax base and an additional 3% in the adult social care precept.
Councillor Ray Oxby, leader of North East Lincolnshire Council, said the budget showed the council is dealing with reduced funding.
“The budget before members is a budget for growth,” he said.
“It’s a budget that also reflects the need for a balance of prudence as our core government funding continues to be reduced.
“We will not be evaporating our reserves where some councils have and are doing.”
But councillor John Stockton, leader of the UKIP group, said he could not support the proposed increase in council tax.
“Wages are not rising in this town and that is the problem,” he said. “But still we keep putting rates up.”
Councillor Matthew Patrick, portfolio holder for finance, community assets, governance and tourism, said that the council tax rise was fair.
“We are sticking with a 4.98% increase instead of the full 6%,” he said.
“We are doing this because of stagnant wages and it would not be fair to add an extra 1%.”
Councils across the country can increase council tax by 3% without the need for a referendum.
It comes after Communities Secretary, Sajid Javid, increased the threshold of which councils are allowed to raise council tax by.
As a result, council tax can be increased by a maximum of 5.99% if an authority were to include the 3% for the adult social care precept.