CITY council leaders in York only narrowly escaped having their budget "capped" by the Government, the Evening Press can reveal today.

The Liberal Democrat-run authority's 8.5 per cent council tax increase was bang on the threshold allowed by Deputy Prime Minister John Prescott.

If either the increase in bills or its overall budget increase - 6.5 per cent - had been just a fraction higher, City of York Council would have faced stiff punishment.

Finance bosses would have been forced to slash budgets and send out new bills to householders across the city - at a cost of a further £500,000.

York Labour MP Hugh Bayley said that if just one more council had been capped by Mr Prescott, it would have been York.

He told the Evening Press that the council - one of 65 to be sent a warning letter by Mr Prescott - had "got away by the skin of their teeth".

He said: "I'm glad they weren't capped - they would have had to withdraw all their bills and send new ones at a cost of £500,000. That would have been £500,000 of cuts to services.

"But it is a stark warning for the Liberal Democrats that they have to get their soaraway spending under control or they will be capped next year."

He said: "They were helped by inheriting the lowest council tax in Yorkshire from the previous Labour council.

"But, because of that big rise, it is no longer the lowest. It is not just me, the public are protesting too."

But council leader Steve Galloway hit back, saying: "What really annoys is that York has now got the tenth lowest council tax out of 352 local authorities.

"Last year we were 13th lowest - we have actually improved our position.

"The Government's criteria don't take into account the actual expenditure of the council compared with other councils.

"We have the lowest expenditure per head of population of any unitary authority.

"Hugh Bayley needs to familiarise himself even more with the details of local government finance before he makes erroneous claims."

Coun Galloway said: "The council tax is an unfair way of raising local revenue. We are calling for a system of government funding which is based on people's ability to pay."

North Yorkshire County Council also escaped "capping", along with the region's district councils and the fire and police authorities.

The police authority had raised its share of the bill by 9.94 per cent, creating an overall budget of £122 million - £8 million more than last year.

Nationwide, the Government capped six local councils and one fire authority.

It warned three police authorities and four fire authorities it may take similar action in the future.

Updated: 10:25 Friday, April 30, 2004