HOUSEHOLDERS in York face huge council tax increases or service cuts next year under a Government "double whammy".

The Evening Press has discovered the city council is on a small list of local authorities to be punished twice by new funding rules.

North Yorkshire County Council is also on the list, which the Office of the Deputy Prime Minister was forced to publish in a written Parliamentary answer.

As a result, the cash grants paid by the Government to provide services next year are expected to be poorer than those handed to disadvantaged areas in Labour heartlands or parts of the country considered to have high living costs when they are unveiled on Wednesday.

Councils will be left with the stark choice of cutting services - or a further huge increase in council tax bills to bridge the gap.

Last year, North Yorkshire County Council was forced to raise bills by 11.5 per cent after its Government grant increased by only 5.2 per cent, or £15.2 million, when the "double whammy" hit for the first time.

Experts are warning the increase could again be 12 per cent - or higher. This would have a huge impact on the bills sent out by Harrogate, Ryedale, Craven, Scarborough and Selby District Councils. Although these councils send out the bills, the biggest chunk of the demand is to pay for services provided by North Yorkshire County Council - such as schools and old folk's homes.

The "double whammy" is because both local councils do not receive the Area Cost Adjustment - which gives a bonus payment for areas with a high cost of living - but get money taken away under "resource equalisation".

Resource equalisation diverts money from wealthier areas, considered to have a "healthy council tax base" and gives it to poorer areas.

City of York Council leader Steve Galloway said: "It would help enormously if there were proposals to bring us within the ACA. That is a point we will be making to local MPs.

"We are very conscious that council tax levels in York will be heavily influenced by the Government announcement on grants. Local government was generally short-changed last year."

County council leader John Weighell said: "We had been led to believe last year was the end of resource equalisation. Certainly we hope it won't happen this year."

City of York Council managed to limit its increase to six per cent last year, after getting a funding hike of 5.9 per cent from the Government, but could face tougher choices next year.

Vale of York MP Anne McIntosh, said county council officials were braced for bad news.

The Tory MP said: "It looks like they will be raiding our coffers to subsidise profligate councils in places such as Sheffield and Hull, John Prescott's local council. The settlement North Yorkshire got last year did not even cover the increases in employer National Insurance payments for teachers and other staff."

Critics have questioned the wisdom behind the funding rules.

They say if an area is too wealthy to benefit from resource equalisation, it is also likely to have a high cost of living - and should get Area Cost Adjustment.

Updated: 14:11 Friday, November 14, 2003