Petersfield town councillors admitted this week that the black hole in the council budget was a result of shortsighted financial policies.

Senior councillors held their hands up at a meeting on Monday night and declared that years of under-precepting was the cause of the looming cash crisis.

And, they added, repeated cutbacks had led to "unrealistic budgets", compounding the problems.

In a damning report earlier this year, the council's internal auditor Alan Harland said he had "serious concerns" about future finances at the town hall. Financial projections revealed that revenue cash reserves were being bled dry to keep tax rises to a minimum.

And councillors were told last month that tax hikes were needed to keep the authority out of the red.

This week the council agreed recommendations from its finance and general purposes committee to address the problem.

Councillors admitted the crisis was of their own making. Ken Hick told colleagues: "We have all been guilty of failing to realise that the council expenditure inflates by eight per cent per annum, whereas we have inflated our precept by two or three per cent.

"Whichever way you put it we have been under precepting for a number of years."

George Watkinson added: "When we as a council cut and cut officers' budgets we no longer have realistic budgets. We are at fault."

And Aaron Baird was in no doubt as to where to lay the blame. He said; "If the reserve stood at £188,000 originally and it has been getting smaller year on year then surely that's our responsibility as coun-cillors."

But the chairman of the council's finance and general purposes committee, Bob Ayer, said changes to the budgeting process were the root cause.

"I have looked closely at the budget reports since 1999. The simple fact is since the 2002 budget we have failed to produce revised estimates."

He added that in doing so the council was no longer paying heed to the actual level of its reserve balances.

"I believe it is very important the council accept this simple fact and listen to the advice of the auditor.

"The latest advice from the auditor is we should aim to increase the general fund balance to £72,000 within three years."

Mr Ayer then asked officers to explain why the budget process had been changed in 2002. He was told the council's responsible financial officer, who was not present, would report back to the next finance and general purposes committee meeting.

The council agreed three recommendations to tackle the issue: to set their precept claim to ensure that a balanced budget is set, to thoroughly investigate all opportunities for increasing income and decreasing expenditure and to monitor expenditure and income over the next financial year with a view to finding efficiencies.