THE city's annual budget settlement has been praised by York's Labour group - despite council leader Steve Galloway's announcement that service cuts could be on the way.

The party said it "welcomes" the Government's announcement that the expected funding for City of York Council will "again be more favourable than was expected".

Spokeswoman Coun Janet Looker said the cash meant the city would receive a 6.6 per cent budget increase "in effect a rise well above inflation".

She claimed it was the third successive year where York has "done well" out of the annual Government settlement.

Last week, the Evening Press reported Coun Galloway's fury after the Government changed the formula for calculating the grants and then withheld an extra £1.25 million from the city.

Branding the decision "grotesque", Coun Galloway said the decision would mean York residents being faced with a council tax rise of 7.5 per cent or service cuts.

Of the Labour claims, Coun Galloway today said he believed the party had "got its figures wrong" - claiming the increase was only about three per cent.

Coun Looker said: "This is a welcome acknowledgement that the Labour government is continuing to invest in local government and that York is benefiting from this investment. This should mean that there is a real opportunity for York to gain from the increases in Government funding and we look forward to debating these in the New Year as part of the Budget process."

Coun Galloway said: "It is worse than we first thought. We know now that the increase from Government is only about three per cent because of the extra services that we are being required to provide. Other grants, such as Supporting People, have also been reduced.

"I think that these figures are wrong and we haven't had a substantial rise at all."

Meanwhile, council tax payers will probably see a 4.1 per cent rise in the precept paid to North Yorkshire Fire & Rescue Service.

The body will meet on Monday, to approve a total precept of £15.72 million. The precept is the money it receives to run its services and is obtained through the council tax. It means the average Band D tax payer will fork out £54.73.

Updated: 11:22 Tuesday, December 13, 2005