NEWPORT residents face digging deeper into their pockets because of a £6.7 million shortfall in the authority's budget.

And, council chiefs are warning, the authority also faces cutting services or using its savings.

The cabinet was meeting today to brainstorm finding the cash to cover next year's budget.

It predicts expenditure for April 2003 to March 2004 of £189m; but its resources from the government, grants and council tax fall short by £6,673,000.

Joyce Steven, head of finance and scrutiny, said many issues were to blame for the squeeze.

Pay and price increases will cost an extra £8.5m - including a 2.5% pay rise to non- teaching staff, an 8.5% rise in energy costs, and 10% more to cover the fire service.

Contractors will get £6.9m when the Southern Distribu-tor Road opens and teachers' workload agreements add another £1.64m.

The city's contact centre adds £300,000, Local elections £70,000 and the Eisteddfod £100,000.

Councillor Ken Critchley, cabinet member for resources, said: "It's a terrible situation to be in. But we want to manage change so we're providing a number of options.

"We've had to look at a number of services. It's difficult for any authority to provide from the cradle to the grave."

He said the cash given by the Assembly was "reasonable" and that other factors were to blame for the shortage.

Increasing current levels of council tax by 1% would raise £264,000 and if the whole shortfall had to be funded from council tax, that would mean a 25.4% hike. Tax on a band D home would then jump £139.48 from £549.14 to £688.62.

Councillor Critch-ley said of raising Newport's council tax, one of the lowest rates in the UK: "It's a factor. Many senior managers might not be averse to increasing council tax."

And Mrs Steven told the cabinet the council could take £2m out of its £6m savings to reduce the shortage to £4.7m

But she warned that would leave the council unable to draw on its reserves for the 2005/06 budget, which is also looking bleak. Councillors have also made a list of cuts after they were asked to scrutinise service budgets to find £5m of savings.

Even if council tax were frozen, the council would collect £353,000 more council tax next year because new homes have been built - but the shortfall already takes this figure into account.

The cabinet was due to vote on whether to discuss the options with all councillors at two seminars before final decisions are due in February 2004.

Any rise will come as a further blow to Gwent rate payers after retiring chief constable Keith Turner warned that the police precept, which makes up part of the council tax, will rise for the next financial year.

The council tax rates will be set by all the Gwent local authorities later this month.