Wandsworth Council is facing a £6million financial blackhole next year, meaning a stark choice between raising council tax by 12 per cent or cutting services.

The bleak projection follows the Government’s annual announcement of its grants for local authorities, which gave Wandsworth £227million for 2004-05, an increase of £8.5million or 3.9 per cent.

However, with every penny of the increase being swallowed up by ring-fenced funding for schools following this year’s education cash crisis, it leaves the council to find £6million to maintain other services.

It means Wandsworth, whose stated aim is having the lowest council tax in the country, is being forced to choose between putting its share of the council tax up by 12 per cent – £42 on this year’s £580 Band D council tax – or to slash spending.

Council bosses will make a final decision in February on what, if any, services will be affected.

The council confirmed yesterday it intended to give the full £8.5million of extra funding to the borough’s 57 primary and 10 secondary schools.

The Government accused the council in May of not “passporting” the full amount of education funding to schools and threatened to force it to do so if it did not this year.

The grim situation comes after months of public and private bickering between local government minister Nick Raynsford and the council over whether the Government will cap excessive council tax rises.

Mr Raynsford said this week he did not expect rises to be more than seven per cent, and speaking to the House of Commons on Wednesday, he cited Wandsworth – which raised council tax by 45 per cent last year – as an example of a local authority setting “excessive” tax rises.

But Wandsworth has accused him of bearing a politically motivated grudge. It argued yesterday capping the lowest average council bills in the country would be “ludicrous”.

Deputy council leader Councillor Maurice Heaster said Wandsworth was getting £3million less than the average inner-London borough, which received an overall 5.3 per cent increase “It’s an absolutely huge body blow. It leaves us stuck between a rock and a hard place.” Opposition Labour leader Councillor Tony Belton said the borough was “paying the price” for the council’s low-tax objective.

“Wandsworth is beginning to face the same problems as every other council in the country in having to decide whether to close schools, increase charges for elderly people or raise council tax.”