The 'Tower Hamlets First' directly-elected mayor Lutfur Rahman was re-elected to a second term in May, amid scenes of celebration when 2,000 mainly Bengali people gathered on the streets to await the announcement. While Labour have the most councillors in the borough they do not have a majority, and Rahman leads an independent Tower Hamlets First cabinet.
Immediately after the 2014 election an investigation was ordered by Pickles into allegations of fraud. This followed a Panorama programme which claimed that Rahman had more than doubled funding to charities run by his supporters.
It appears the Labour Party have colluded with the government to send in inspectors.
Rahman was originally Labour's candidate for the newly-created mayoralty in 2010 but was expelled. When he was elected as an independent mayor he offered to run the council together with Labour, but they refused.
The report, conducted by PriceWaterhouseCooper (PWC), the auditors that can be guaranteed to advise privatisation and cuts to local government services, will cost the borough £1 million.
It is clear that the fraud Pickles was looking for cannot be found. The report claims there is evidence of poor governance, financial mismanagement and a lack of transparency over the awarding of public grants and disposal of public buildings.
This relates to budget areas totaling £20 million out of council expenditure of £1.2 billion - with the vast majority even of the investigated spending unchallenged - and the report accepts that in other services Tower Hamlets meets the government's 'good governance' and 'value for money' criteria.
That didn't stop Pickles making incendiary statements in parliament, referring to "cronyism and corruption", calling Tower Hamlets a "rotten borough" and the mayor a "medieval monarch", which have been gleefully taken up by Labour opponents of Rahman in the borough.
A big community meeting of 1,000 people heard pledges of support from former Labour London Mayor Ken Livingstone and the former Bethnal Green and Bow Respect MP George Galloway.
The Socialist Party completely opposes the imposition of unelected commissioners by an anti-working class millionaires' government in place of local accountability in Britain's poorest borough.
How can the people of Tower Hamlets take lessons in propriety from a man who was a close associate of the disgraced Tory leader of Westminster council, Shirley Porter, who in 1996 was surcharged £27 million for directing public funds to secure the Tories' electoral base in Westminster?
Pickles has been used by the Tories to wield a big stick over local government. He has presided over a 27% cut in local government finance, and it is predicted that by the end of the newly-announced austerity programme in the next government, council funding could have been cut by 80%.
As Lutfur Rahman correctly says, he will "not take lectures on 'the politics of division' from parties that bash immigrants and those on welfare benefits, or from politicians disgraced by expenses scandals, discredited by lies told to justify war, and intent on scapegoating the vulnerable in our society for an economic crisis caused by the most powerful".
Communities Minister Tariq Ahmed says Pickles' intervention "is entirely to do with protecting local taxpayers from an abuse of executive power and the systematic breakdown of local democratic checks and balances".
But that is the nature of the undemocratic mayor and cabinet system, brought in by Labour and now being vigorously promoted by the Tories even without the pretence of a democratic vote, as in the Greater Manchester authority where a mayor is being imposed.
The report itself shows that Rahman has only taken the control the law allows him to do. "We note the mayor has retained decision making power over all grants in excess of £1,000 and therefore over the majority of the Authority's grant making activities, as the Authority's Constitution and the law entitle him to do".
The mayor "also proposed the replacement of the existing Grants Panel (which was an open forum with decision making powers) with a Corporate Grants Programme Board, which is only empowered to make recommendations for approval by the mayor and whose proceedings are not open to the public... the shift of decision making is consistent with the mayors' lawful retention of decision making".
While PwC say that this "has led to a loss of transparency", it is actually not fundamentally different to how the other 14 directly-elected mayors in England operate.
When George Galloway campaigned for a directly elected mayor in Tower Hamlets in 2010 we said it was a mistake. We argued then that "it is far easier in such a system for one person to take unpopular decisions to cut or privatise services, or to favour business interests, than to win support for such policies amongst a wider group of councillors who know they will have to justify themselves to a specific ward area of local voters....The real route to local democracy is to argue for elected councillors, who are fully accountable and subject to recall by those who elected them".
In this attack on Tower Hamlets council there is undoubtedly a whiff of racism against a mainly Bengali-run council, although many of the accusations are of discrimination in funding against Bengali community groups run by Labour supporters. This has been added to by Ofsted's intervention against seven schools in Tower Hamlets, headlined as protecting against 'Islamic extremism', even though six of the schools are independent, with no control by the council.
But principally the Tories, backed by Labour, have seized on the opportunity presented by the allegations to intervene against a council that is seen as different from the establishment parties and taking measures to support the community.
The PwC report makes it absolutely clear that in reality this intervention is about cuts. They were called in "to make arrangements to secure continuous improvements in the way in which the Authority's functions are exercised having regard to a combination of economy, efficiency and effectiveness." The prospect is that, if unchallenged, Pickles' henchmen will be used to speed up the process of cuts.
Lutfur Rahman has introduced some important reforms. He maintained a local version of the EMA (financial support for 16-18 year olds in education) which was abolished by the Con-Dem government, and has established a university grant of £1,500. He has introduced free primary school meals for all years and improved elderly home care.
The Socialist Party supports these measures. But we have always said that best way to defend such steps is to go further and resist all the government's attacks. We were part of the Trade Unionist and Socialist Coalition (TUSC) challenge in the borough in May, which stood 14 council candidates and a mayoral candidate (in a transferable vote election where second preferences count), precisely to make that point.
In reality the council has made significant cuts. £125 million has been stolen by central government and now another £70 million is proposed. Mayor Rahman has run roadshow consultations on the cuts - like many Labour councils, in effect asking the community to choose the cuts themselves - which have only sown confusion and division locally.
Recently four day nurseries were threatened with closure and the council unions are lobbying against further cuts to home care, mental health services to children, mental health and elderly day care centres and more. The council even saved money in the last budget to put into reserves to be able to pay redundancy for staff cuts in this budget.
A vibrant campaign of parents has forced the mayor to reconsider the closure of three of the nurseries, and he has also instructed the withdrawal of cuts to mental health services. These successes give a glimpse of what would be possible if a serious campaign to withstand all the cuts was mounted.
But Tower Hamlets First has effectively taken a similar approach to the Greens in Brighton - ameliorate the cuts but essentially still implement them. And Pickles' intervention will raise the question again, is there really any alternative to passing on this government's cuts?
'The government will send in the commissioners' has been the bogeyman held up by Labour councils and the Greens to justify their position that nothing else can be done. Some will seize on Pickles' announcement to say this proves it.
Actually the Tower Hamlets experience so far shows that it is not easy for the government to just take over a council. Tower Hamlets is not being 'taken over'; three commissioners will oversee grants, selling council property, senior appointments, and some contracts.
Lutfur Rahman says this will only involve 1.9% of the budget. And it has taken months for this process to get underway, allowing plenty of time to build up a campaign.
But most importantly, what has happened in Tower Hamlets shows that passing on the cuts while taking some measures to sweeten the pill does not work.
The Socialist Party has always said it is necessary to make a stand and to refuse to implement the cuts. Councils should follow the road of Liverpool Labour council in the 1980s, led by supporters of the Militant, the forerunner of the Socialist Party.
Liverpool council refused to make the Tories' cuts, set a budget to meet the needs of the city, and mounted a massive trade union and community campaign to win the necessary funding.
The campaign involved thousands of local people in mass demonstrations, a city-wide strike, and real consultation on the services they needed. While popularising the idea that the Tories had stolen £30 million from the city, the council never presented the struggle as a matter of 'putting Liverpool first'. They attempted at all times to link up with other councils to fight against the government's cuts.
Unfortunately, in contrast, Tower Hamlets council has not organised even one demonstration against the government's cuts to the borough or sought to mobilise a national campaign against the Con-Dems.
Lutfur Rahman has said he has replaced "national politics by community politics", when what is needed is a different 'national politics' that could take on this government and whatever combination of pro-austerity establishment parties that comes next.
In this situation, the two biggest unions in Tower Hamlets, Unison and the NUT, whose local secretaries stood on the community meeting platform with Rahman, have a critical role to play in fighting for the Liverpool methods of organising.
Tower Hamlets First could still build a campaign to defend the borough, resist the commissioners, stave off cuts, and spearhead a national fightback. But a national strategy is needed, for example to call a conference of rebel councillors and council unions.
TUSC is in the process of arranging a discussion about the general election with Tower Hamlets First. This must include a discussion on how they see their role in building a national alternative to austerity.
The Trade Unionist and Socialist Coalition (TUSC) is aiming to stand at least 100 candidates in May's general election.
But in many ways the council elections are as important as the general election in deciding what will happen to the vital public services provided by local authorities.
With all the establishment parties - and UKIP too - committed to austerity, the best that will happen in the Westminster elections is that there will be a change of 'management style' at the top.
That's why it is important to have local councillors who will refuse to vote for cuts in the council chamber. And that is why TUSC is appealing to trade union members, anti-cuts campaigners, young people - everyone in fact who opposes the austerity agenda - to themselves come forward as council candidates next May.
Among other pledges, all TUSC councillors will: