A troubled theatre is getting a £650,000 subsidy from its council owner.

Durham City Council is to pump the money into its flagship Gala venue, which opened in January 2002 but was dogged by problems when the firm hired to run it collapsed with debts of £700,000.

The council, now under Liberal Democrat control, has hired Darlington Council's arts team to run the venue for a year.

Finance director Liz Hall said in her statement of accounts for the 2003/04 financial year which ended in March, that the budget for the year of £395,000 "proved to be unrealistic.

"A realistic business plan was prepared targeting a £700,000 subsidy. The final subsidy was £54,000 above this plan.

"£24,500 of this was the unbudgeted first payment of the management fee to the arts team from Darlington Borough Council.''

She added that in what is now the current financial year the planned subsidy was £650,000, which the council believed was at a "stable and realistic level''.

Carol Woods, the cabinet member for finance, said the council was now on a "firm financial footing'' as the Liberal Democrats had promised in their election manifesto.

"We have had both luck and good management in the last year.

"The city council has received unexpected receipts, from fees and charges and rates refunds.

"Because of this, we've been able to both meet the unbudgeted costs of the Gala Theatre and increase our reserves.

"The District Auditor was concerned at the level of reserves and I expect that the current position will make her very happy.''

But Labour councillors are angry at the running of an extraordinary council meeting to agree the accounts and say they were prevented from asking questions or putting amendments and that the accounts contained errors.

A spokesman for the Labour group said they had complained to the District Auditor about the handling of the meeting and pointed out that they did not support the statement of accounts.