A COUNCIL tax rise of 7.5 per cent or cuts in city services - that's the option facing York council chiefs today following a "grotesque" decision from central Government.

The average Band D council tax bill could go up by nearly £84 next year after the Government changed the formula by which it calculates the grant handed to councils - and then withheld the extra cash it could have given to York.

City of York Council believes it will get a 3.2 per cent increase in its grant - making the total figure nearly £36 million.

But council leader Steve Galloway said the Government grant announcement states that York is entitled to a further £1.25 million, based on its needs.

The grants increase was outlined yesterday by chancellor Gordon Brown and local government minister Phil Woolass.

Said Mr Galloway: "As this would have meant taking funding away from councils that have been overfunded in the past - the Government is to phase-in the transfer".

Coun Galloway said the decision will mean that, with no further efficiency savings available in the forthcoming budget, residents will be faced with either a 7.5 per cent council tax hike or cuts in the services that they use.

Coun Galloway has been campaigning for a fair grant for York, along with city MP Hugh Bayley, since coming into office in 2003 - and he believed the change in formula would finally recognise York's position.

He said: "I think this is grotesque. It is unfair and I will be making representations about it.

"We always thought we were getting too little (in the past) and we know we have lost that money. We did expect that the force of the Fair Grant For York case would mean we would get a significant increase for the forthcoming year.

"We should be getting this money."

Coun Galloway said he could not say at this stage which services could be cut. The council is about to begin consultation with residents on the options for council tax.

Government has indicated it may be prepared to cap councils who bring in a tax increase of more than five per cent.

Coun Galloway said that if that was the case, the authority would have to cut services.

He said: "It is too soon to say what this means in council tax terms or what cuts we may have to make in service standards.

"We still face some difficult choices between increasing council tax beyond five percent or cutting services.

"We have run out of genuine efficiency savings and at the level we are now, we would have to look at reducing services that people use."

Updated: 12:16 Tuesday, December 06, 2005