More jobs could have to be axed at a council after Government plan left bosses with a £3.6 million funding gap.

Brighton and Hove City Council will have to make up the shortfall to fund the Government's free bus scheme for pensioners.

The scheme will provide free travel for OAPs at an estimated cost of up to £11 million a year to the local authority.

But because just £7.2 million of the bill will be covered by the Government, fears of fresh job cuts have surfaced at the council.

A council spokesman said that a larger-than-expected Government grant for other services had left the council with £2 million extra to spend on buses and that it had set aside another £1 million in anticipation of the funding shortfall.

But despite using up these reserves the council will still be left with another £600,000 to find, which equates to potentially another 20 job losses.

This comes just weeks after The Argus revealed hundreds of council staff could be made redundant in a bid to fill a £7 million hole in the budget.

More than 160 council jobs could be axed to save money as the city council battles to keep council tax increases to 3.9 per cent when it sets the budget for April 2008.

A council spokesman said: "We rather saw this coming and had sensibly done our best to prepare for it.

"But we still feel it should be properly funded by the Government so we can spend this £3.6 million on other things.

"We'd put aside £1 million as we saw it as a potential problem.

"We got a slightly higher main grant from the Government than expected, which would cover £2 million, leaving us £600,000 to find. We're exploring ways of doing that."

Councillor Ann Norman, the chairman of the council's finance committee, said: "We're glad the Government chose the option that secured the highest sum - £1.7 million - but it still leaves us around £3.6 million short of what is required to fund the existing scheme and extend it next year.

"We're likely to ask the Government to look again at how this scheme is funded nationally, reconsider how grants are calculated for each area once real costs are known and set aside some money for the worst affected councils."

Alex Knutsen, the Unison branch secretary for Brighton and Hove City Council, said he feared that the number of job losses will top 200 this year.

He said: "It is looking like job losses in excess of 200 before we take into account the £3.6 million.

"We are worried about compulsory redundancies but also the effect on services.

"We will almost certainly be going for an industrial action ballot."

The Government-funded bus scheme, which goes national in April, will allow pensioners from across the country to travel around the south coast for free.

City taxpayers will have to pay for all trips starting within Brighton and Hove, including journeys back to neighbouring authorities and tourist travel.

Councillors believe that the Government formula for distributing cash does not take this fully into account.

Sussex was one of the first areas to pilot the concessionary bus fares, which give people over 60 free travel, and the city council has already been struggling to pay for the county-based programme because of Government underfunding.

Councillors have been forced to find another £2.6 million already this year to make up the shortfall.

But the Government has defended its spending saying that it is confident the money will meet the total cost to local authorities and the funding is based on generous assumptions about pass take up and coastal towns.

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