North Wiltshire District Council will have to cut spending or hike up council tax next year to tackle its dwindling reserves, warns an auditors' report.

It reveals the council's reserves halved from £4m to £2m between March 1999 and March 2000.

And the balance is expected to drop further to £1.3m by March 2001.

Councillors have been warned the total council tax the council collects may have to rise by £1 million, a rise of 22 per cent.

Auditors also questioned how the district council can afford to pay for its new offices, currently under construction in Monkton Park through a private finance initiative. The PFI contract runs until 2026, and the council will have to find an extra £19.6 million to pay the bills.

Although the annual repayments are low to start with, they increase over the years of the contract and members were warned they should come up with strategies to even out the financial burden.

Coun Richard Tonge, who represents Lacock, said after the meeting: "The chickens are coming home to roost now."

He has been warning members about the problems of the escalating repayments and said his fears have been justified. He said: "In the short-term you can shrug these things off but I am very concerned about the long term finances. Our reserves are lower than most councils.''

The auditors did point out the district council had performed well overall and had met its stewardship responsibilities.

Coun Philip Allnatt said: "We've got a B plus, a good health check now, but we have to take it steady for the future. Our balances are okay but it's something we have to watch."