Liverpool has been a town since 1207, when it was granted its first charter by King John. It has had a town council since before the 19th century, and was granted city status by Victoria.
When local government was introduced in 1888 it was one of the cities to become a county borough, and thus independent of Lancashire. This situation persisted until 1974 when due to urban expansion and the accretion of a large metropolitan area, the city was made a metropolitan district of the metropolitan county of Merseyside.
During the 1980s, the entryist Militant movement infiltrated the Labour party and took control of several councils including Liverpool, and challenged the national government on several issues. It was felt by the Thatcher administration that the metropolitan counties were too powerful (especially Greater London Council), and so rather than risk more confrontations, she decided to get rid of them. In 1986 the council of Merseyside was abolished and its functions devolved to its districts, but the county still legally exists.
It should be noted therefore that Liverpool has never been a district council under Lancashire County Council.