Anger: Beecham

Councils are facing a £800 million hole in their finances, local authorities have warned.

Ministers were warned on Wednesday that the funding gap could lead a £100 increase in the average council tax bill unless the government provides extra funding.

The Local Government Association said many authorities have acute problems and called on ministers to act.

The three main parties in the association issued their stark warning in a letter to deputy prime minister John Prescott.

It is just the latest stage in a growing rift between local and central government over council tax bills.

This year the average bill rose by 13 per cent - prompting ministers to warn that they could use capping powers next year to limit increases.

Local government minister Nick Raynsford has admitted bills have now reached the limit of affordability and announced a review of local government financing.

The LGA praised ministers for the significant extra resources put into local government in recent years but argued that an increasing burden had been placed on the council tax payer.

"It has now reached the point where council tax increases are perceived by many as being too high," the LGA warned.

Local government chiefs predicted another repeat of the schools funding fiasco next year.

And they warned that the money pledged by education secretary Charles Clarke is around £300 million short.

Other shortfalls, including a £200 million gap for police authorities, and reforms to social services have added to budget pressures, the LGA claims.

Adding to the headache has been the increasing use of ring-fencing by ministers to force councils to spend specific cash in areas such as school repair work.

This has been exasperated by the "gearing effect" which decides how much cash councils will have to raise through council tax.

Authorities are dependent for three quarters of their spending on government grant.

The gearing effect means a one per cent increase in council spending commitments causes a four per cent council tax increase.

"Schools, children's and adult social services, traffic management and cleaning up the environment are only some of the many areas where spending has to rise," said LGA chairman Sir Jeremy Beecham.

"The problem for this coming year is the perception that council tax levels have already reached the heights of acceptability, but most councils have nowhere else to go to raise income.

"We are working closely with the government to find a long-term solution to this problem, through the balance of funding review. But this won't fix next year's council tax levels and spending needs."

An ODPM spokesman said that councils would have to wait for the announcement by the government at the end of the month of next year's grants.

"The government has been considering the pressures faced by authorities as we finalise our proposals for the provisional settlement which will be announced shortly," he said.