York's £10 million budget shortfall

In a speech to the council, Coun Steve Galloway said York was looking at a projected funding gap of £9.7 million next year.

But the Lib Dem leader said the authority was planning for a council tax rise of less than five per cent.

Coun Galloway told City of York councillors that "if current trends continue" the authority would overspend by almost £1 million this year, with some of it due to the "delays in selling the land next to the Barbican".

He said the council knew that it would face a "difficult financial position this year" as residents requested low council tax increases, the authority had increased demands on services and a "background of central government meddling in our affairs".

He told councillors: "Against that background, the council is controlling its costs well - but not as well as last year."

Executive members will be told that it is unlikely any request from council departments for more cash would be agreed "in the foreseeable future". Coun Galloway said: "We are entering a period of belt tightening."

Last year, Coun Galloway also unveiled a £10 million cash budget shortfall. He said this year's deficit was due to "recurring pressures" including increased demands in services and fuel and oil prices, and new costs, such as delivering the new licensing act, which has cost the authority £88,000.

Coun Galloway told councillors there was some hope on the horizon, as the authority's Fair Grant For York campaign had succeeded in its first objective of getting the Government to carry out research on the inequalities in the grant system which had "adversely affected York for many years".

He said "Our expectation is that we will be required to manage with an increase in council tax levels of less than five per cent. We will plan on that basis."

But he warned: "If we continue to experience additional demand for our services, as is almost inevitable with the demographic changes that we continue to see, then this will mean some very hard decisions for the council to take next February."

Labour leader Coun Dave Merrett claimed the council had done "exceptionally well" in grant terms during the last two years. He said: "Let's get rid of the myth that some of our difficulties are to do with the Government."

He added the budget deficit was down to Liberal Democrat "incompetence" and cited shortfalls in car parking income as a prime example.

"This is the difference between the aspiration and real world. All councils have to face this," Coun Merrett said.

Updated: 08:34 Thursday, October 06, 2005