A COUNCIL department charged with rubbish collection, street cleaning and housing repairs has racked up losses of £75,000, a new report reveals.

City of York Council's commercial services initially planned to make a £150,000 profit this year, but contract problems sent it into the red.

Labour councillors today blamed the cash dip on the creation of more management posts in the department.

But Liberal Democrats said they were paving the way for future profits by expanding the £22 million service and making it more professional.

The budget report to the executive member for commercial services, Charles Hall, confirmed a loss of £75,000 was expected this year.

John Goodyear, assistant director, said profits were hit by prices in housing repair and school cleaning contracts not keeping pace with inflation. But the report says this situation is expected to be corrected in 2005/6, when a profit of £140,000 is predicted.

Changes to key contracts are in the pipeline, with school cleaning charges set to rise slightly above inflation. Savings of nearly £77,000 have been identified in the report, including cuts to out-of-hours supervisor cover, staff overtime and the department's vehicle fleet. Coun Hall is warned in the report there is a "significant risk" attached to turning the finances around.

Labour Group leader Dave Merrett said the service's losses stemmed, in part, from a Lib Dem management shake-up.

"We were concerned at the time that there wasn't an adequate business plan when they increased the numbers of management staff considerably," he said.

But Coun Hall dismissed these claims. Two new assistant director posts and a new tier of middle management had been created, but this was part of a "long-term strategy".

He said a proper management system had to be in place as the council pushed the service away from a time-consuming compulsory tendering system, to a more efficient rolling programme that cuts red tape and allows more work on the same budget.

Coun Hall said the new school contract would see commercial services, which employs the equivalent of 570 full-time posts, "charge the going rate".

Budget plans will be discussed by councillors on Tuesday at the commercial services advisory panel.

Updated: 10:33 Monday, January 31, 2005