Families face big increases in council tax bills or crippling cuts in services to counter a Government policy that takes cash from the South and gives it to the North.

Householders face a 20 per cent rise, making £1,000 council tax bills the norm.

The Government action, which is named "resource equalisation", was confirmed by Local Government Minister Nick Raynsford who warned council leaders not to expect major changes to the policy.

Reaction to the news was scathing today.

Under the new distribution formula, East Sussex received a funding increase of only 3.8 per cent. The national average is six per cent.

Councillor Peter Jones, leader of East Sussex County Council, described the news as an absolute disaster.

He said: "We are looking at about a 20 per cent rise in council tax. We will keep pressing and try to bring about changes for future years."

Coun Jones said the formula for working out the grants was chaotic and had attracted widespread criticism at Parliamentary level as well as in local government.

He said: "Well over £100 million is going from the South-East to the Midlands and the North.

"We are one of the poorest counties in England.

"Wages in Sussex are poor, on a level with Teeside and Tyneside, and house prices are high, which means there is not a high level of disposable income. We also have a high level of pensioners.

"Although the council received a slight increase through the Government grant, it will lose an estimated £13 million in adjustments leaving it with just £10 million to run services such as education."

Elsewhere, West Sussex County County gets a four per cent rise in funding.

Spokeswoman Jane Robinson warned of an 18.5 per cent tax rise.

"The effect of the final settlement, compared with the draft settlement, is we are £1.2 million worse off," she said.

"What we have been saying about being £30 million down and, given the fact that the county council will be looking at an 18.5 per cent increase in council tax, is that we're in a very bad position because of the reallocation of grants."

She added there was protection for the education budget for the next year but this was only temporary and the outlook was "extremely concerning".

Mid Sussex District Council leader Christine Field said: "We now have to put service improvements on hold or increase council tax to cover that loss."

Mid Sussex MP Nicholas Soames said: "What else can councils do except put up taxes? They've been denied money they need which is abidingly unfair.

"The new system is a fundamental unfairness on people across West Sussex."

East Worthing and Shoreham Tory MP Tim Loughton said: "This is a blatant example of the Government transferring much-needed funds to their spendthrift, socialist chums in the North."

Brighton and Hove City Council received a funding rise of only 3.5 per cent and now faces a £17. 5 million hole in its budget, mainly as a result of the poor settlement.

Green convenor Keith Taylor said: "This is very bad news and these year on year cutbacks look set to continue for the next five years.

"This will lead either to a doubling of council tax within four years or savage cuts in services which will hit hard the most vulnerable in our community."

Opposition Tory leader Brian Oxley said: ""It is a slap in the face by a Government which posed as the friend of local government and let everyone down.

"People of all incomes will pay significantly more for services which will not improve. The Government has turned a deaf ear to councils on the South Coast."

Liberal Democrat leader Paul Elgood said: "Because of persistent mismanagement of council finances, residents will have to pay the price."