ELDERLY people in care and schoolchildren will suffer if Monmouthshire's cabinet decides to cut services to claw its way out of a cash crisis, councillors warn.

The cabinet faces a £1 million overspend across three key departments - lifelong learning and leisure, social services and environment - because of a combination of increased demand and a poor cash settlement from the Assembly.

Members of the cabinet, who meet on Thursday, are being presented with three possible solutions to choose from by Steve Greenslade, corporate director for resources:

To cut services, including those for the elderly, or for schools.

To raise council tax for 2004/5, or

To return to full council for a second time to ask permission to delve into the authority's reserve funds.

The cabinet asked council to make £927,000 available to cover the overspend in December, but this was refused.

But in a report, Mr Green-slade warned: "Increasing council tax would result in a 3 per cent increase in council tax over and above the rise needed to fund 2004/5 service delivery.

"Given the stage of the financial year and the levels of overspend forecast, I have doubts that reducing services to budget is achievable, but attempting it would obviously result in severe reductions in service."

Leader of the Conserva-tive group Andrew Crump said: "To run a business you have to stay within budget. If reserve funding is used it will not be with ism."

But deputy leader Mike Smith said: "What are reserve funds for? We have £2.5 million in reserves, which is only half what the district auditor says we should have for a local authority our size, but it's not the auditor's responsibility to provide services to Monmouthshire.

"These departments eat up 80 per cent of the council's budget. Any cuts we have to make will impact severely on the elderly in social care - we have a growing elderly population, one of the biggest in Wales.

"Schools would also need to make savings, rather than go into deficit budget, which means making staff redundant.

"And the most flexible expenditure in the environment department is probably the highways department, meaning lack of money for road repairs."

He said the cabinet did not want to start "scaremongering", but warned: "If we cannot bring the deficit back into balance by drawing on our reserves, then we will have to ask the director to look at where we can make cuts."