THE PROSPECT of substantial service cuts in York loomed closer today as council leader Steve Galloway blasted the Government's "unfair" grant allocation for key services.

The "disappointed" Liberal Democrat leader said an extra £6.5 million handed to the Guildhall stopped short of presenting a "worst case scenario".

But he confirmed hopes had centred on persuading the Government to make fundamental changes to the funding system through the Fair Grant for York campaign.

With ministers again warning council tax hikes will be limited to under five per cent, Coun Galloway warned residents to brace themselves for cuts. He said: "If the council tax is to be restricted to five per cent, then substantial cuts in service quality would be necessary."

Coun Galloway said service quality could be maintained with a ten per cent rise, although a 7.5 per cent option will be a third option for residents to consider when they are consulted through 'voting cards' delivered to their homes before Christmas.

The council has managed to reduce an initial estimated budget black hole of £10 million to about £3 million through efficiency cuts.

But with the authority's hands tied on council tax, grants for voluntary groups and funding for services the Government deems unessential, such as leisure and libraries, tourism, youth clubs, pensioner travel concessions and some home care services for the elderly, will come under the spotlight.

Coun Galloway said about £3.8 million of the £6.5 million grant, an increase of 5.1 per cent on last year, was ring-fenced for education. The rest will be eaten up by wages and inflation.

He warned this left the council with nothing to cover the additional £1.3 million costs of waste disposal, the loss of a direct grant to social services and the costs of dealing with a rising elderly population.

The Lib Dem leader added: "This settlement does not address the fundamental unfairness of both the council tax system - which is not based on people's ability to pay - nor the relatively poor deal York receives compared to other cities."

The allocation takes the council's grant from £103.8 million in 2004-05 to £109.1 million in 2005-06. But it means taxpayers must stump up almost £62 million or face cuts.

Elsewhere, North Yorkshire County Council received a 5.3 per cent increase, from £322.1 million to £339.1 million.

Leader John Weighell said the situation was not helped by the Government clawing back a £1 million grant that has been already spent.

He said: "As usual, it seems as though communities in North Yorkshire will get less benefit from the Government than people elsewhere.

"I'm afraid that whatever the headlines, there is no basis for council tax-payers to be jumping for joy."

Updated: 10:32 Friday, December 03, 2004