COUNCIL chiefs will be forced to look for further cuts after York's Government grant was slashed by more than £300,000.

Guildhall leader Steve Galloway today said the Whitehall move was "very bad news" for the city.

He had previously described the provisional settlement of £109 million - an extra £6.5 million for key services on last year - as stopping short of a "worst case scenario".

But now £330,000 has been sliced off that inflation-busting figure, as the Government confirmed the final grant yesterday.

Council finance chiefs have already cut a deficit of about £10 million down to £3 million with a string of publicised savings, while a recent residents' survey has paved the way for a council tax increase of five per cent.

Officials were braced for a possible grant reduction of tens of thousands of pounds, so today's announcement came as a blow.

Coun Galloway pledged to make any further cuts "as painless as possible", with a revised budget going before the executive on February 15. But he warned more savings may "cut into the bone".

He said: "For them to do this is unexpected and disappointing, particularly as we do not get a fair share of the grant available. This is really adding insult to injury."

He said York lost £330,000 mainly because of the gap between the sum the Government assumed the authority would collect in council tax and the actual figure. "We lose out because our council tax level is one of the lowest in the UK. They assume we collect more than we do."

He said it was too soon to spell out implications. But he stressed £330,000 was the equivalent of a marginal council tax rise, and said the council still hoped to restrict any rise to five per cent.

"We now have to re-do our sums and see how we can make savings," said the council leader. "We have lists of savings identified and may have to revisit them."

Labour Group leader Dave Merrett said the overall settlement remained good and above inflation. He called for council tax collection rates to be urgently reviewed.

Local Government Minister Nick Raynsford said: "This is a very good settlement for all local authorities, and the eighth successive year we have provided local government with an above-inflation grant increase."

Meanwhile, North Yorkshire Police Authority today welcomed the final grant announcement, with an increase for the county of 3.75 per cent. But it pointed out it still received less than the national average increase of 4.8 per cent. Chairman Jane Kenyon said North Yorkshire was one of the authorities which received the minimum grant increase.

Updated: 10:14 Friday, January 28, 2005