TAXPAYERS are bracing themselves for a council tax rise of at least five per cent as an authority faces a £1.5m deficit.

A new report shows that Hartlepool Borough Council, which has a budget of £115m, is on course to balance the books this year after previously facing an unexpected hole in its finances.

But now every department - and members of the public - have been asked to help to find ways to prevent a £1.5m deficit for 2005/06.

The prediction is based on a five per cent increase in the council tax next year which would still leave the massive hole. The taxpayers faced an increase of six per cent in their council tax earlier this year and local authorities have been warned they face being capped if rises are too high next year.

Members of the council's cabinet committee will discuss the latest financial report at a meeting next Tuesday. The report by chief financial officer Mike Ward reveals that unexpected increases in social services costs, particularly in child care, meant the council had been heading for a shock £1.7m deficit in current year. However the effective remortgaging of housing stock prior to it being transferred to a housing company has led to savings of £1m.

Another £500,000 was saved by favourable cash flow and the development of a new care centre for children has been postponed saving £211,000.

But now the council is facing another financial crisis and all departments have been told to look at ways to make savings. In an unprecedented move members of the public will also be consulted. One of the exercises has involved 300 residents, selected at random, being interviewed.

Chris Little, assistant chief financial officer, said inflation, increasing costs of child care and mandatory government projects were all contributing to the problem. The authority was hoping for a significant increase in the grant from central government which will be announced in the coming weeks. All predictions were based on a five per cent council tax increase.

He said: "We are consulting over all aspects of the budget to see if there is any way we can making the savings."

Mayor Stuart Drummond said the council is being as open as possible. "There will be tough choices ahead," he said.