TAXPAYERS in Watford are facing a 20 per cent increase in Council Tax as budget managers struggle to plug a £1.2 million hole in council spending plans.

The alternative is for services to be cut, or charges increased, in a bid to balance the books.

A preliminary budget for 2002/03 revealed a shortfall of more than £1,190,000 which would represent an increase of 20 per cent in Council Tax.

Corporate director of finances and resources Ms Sharon Burd said residents could "perhaps" expect an increase but there was further work to be done.

Work is under way to reduce the shortfall, which has been blamed on a reduction in investment income because of the reduction in interest rates and an increase in insurance costs.

A report presented to the council's executive board on Tuesday stated options being reviewed include increasing income from charges above inflation, changes in service provision and assessing the levels of the council's reserves.

The report stated: "The work will continue to identify impacts on service delivery, both in the short and medium term. In addition, the level of increase in Council Tax needs to be considered."

The findings were greeted cautiously by members. Council leader Vince Muspratt (Labour) said it was too early to be alarmed but said the gap between expenditure and income created "real and genuine pressure".

He said a 20 per cent rise was not on the cards: "This is not acceptable and the executive has agreed to keep any increase to a minimum while ensuring that the services local people want are delivered in as an efficient and effective a way as possible."

Liberal group leader Iain Sharpe said: "A 20 per cent Council Tax increase is not acceptable and we are going to have to do a lot of work over the next few weeks to identify how we can avoid that. Watford already has the highest Council Tax in the county.

Tory group leader Tim Williams said: "I just wonder what Councillor Muspratt's comments would be if a Conservative Government was in charge at the moment. I do see this as national Government which, rather than touching income tax, is trying to tax us in other ways. This is taxation by stealth."

A final draft of the budget will be presented to the executive board on Tuesday, February 5, and will be discussed by a scrutiny panel on Monday, February 11, before it goes before full council at the end of the month.