residents have been warned they face a huge rise in their council tax bills following the Government's decision to cap their local authority.

Hambleton District Council has been ordered to send out new bills to 38,000 households.

The council set its tax at £80 a year for band D properties, an increase of £12 a year.

Although the bill is lower than the Government target of £182 a year for district councils, Local Government Minister Phil Woolas ruled the increase was too high.

Sending new bills will cost the council nearly £200,000 in lost income and another £50,000 in administration costs, councillors say.

"In one fell swoop, the Government has destroyed the sound financial management structure the council has built up over many years," said council leader Councillor Arthur Barker.

"It defies common sense to cap a council that has set the third-lowest council tax in the country and, in effect, penalises us for doing so.

"Our increase only equates to £12 a year in money terms for an average band D property - hardly the excessive increase the Government insists it is."

Mr Barker said new bills giving residents a reduction of just over £5 would be sent out in the autumn.

He said: "We are in a position where a massive council tax increase in the future will be the only way for us to remain financially viable."

The council's portion of the council tax levy represents less than ten per cent of the full bill.

The total amount paid by a Hambleton resident for a band D property is £1,188 when precepts for the county council, fire service and police are added in.

The council was one of eight authorities capped by the Government yesterday.

The others were Aylesbury Vale, Daventry, Huntingdonshire, Mid Bedfordshire, North Dorset, Runnymede and South Cambridgeshire.