Council leaders have claimed a "disastrous" funding settlement will force them to choose between slashing services and hiking taxes.

Central Government grants to the Sussex councils will rise by just two per cent next year, which councillors say is not enough to pay for services.

It means elected members will be under pressure to raise taxes to fill the gap, possibly by as much as seven per cent.

The size of the grant increase, announced yesterday, compares badly to the 3.1 per cent funding boost the Government has shared across the country.

Brighton and Hove's funding, excluding education settlements to be announced, will increase from £95.2 million this year to just £97.1 million in 2006/7. The extra £2 million falls well short of covering the council's anticipated £10 million inflationary costs.

Labour Councillor Simon Burgess described the settlement as "very difficult" and vowed to try to keep tax rises "significantly below ten per cent". He said: "We must protect essential services but the Labour-run council fully understands large council tax increases are unaffordable for many in the city, especially pensioners."

Conservative councillor Brian Oxley said the grant was disastrous for Brighton and Hove. He said: "Once again the Government has kicked us in the teeth. We are going to have to push up council tax or cut services to cover the shortfall in funding."

East Sussex will get £79.8 million in 2006/7, up from £78.2 million last year, while West Sussex will receive £80.2 million in 2006/7, up from £78.6 million last year. The county councils and Brighton and Hove will all get 2.7 per cent rises in 2007/8.

Peter Jones, Conservative leader of East Sussex County Council, said: "That's nowhere near enough to do what we need to do."

Henry Smith, Conservative leader of West Sussex County Council, said: "It's another raw deal which will have a direct impact on the services we are charged with providing."

Eastbourne, Rother, Wealden, Arun, Chichester, Crawley, Horsham, Mid-Sussex and Worthing all received three per cent increases. Only Adur, with 7.4 per cent, and Hastings, with 6.5 per cent, and Lewes, with 5.6 per cent, received more generous settlements.

The Government warned it would cap any authorities that try to raise council tax by more than five per cent.