FALLING interest rates have helped many with their mortgage but they are causing a big hole in the finances of Test Valley Borough Council.

The council's executive was told that the falling investment returns had lopped £511,000 off the council's income this financial year and in the year from next April returns will be £670,000 lower.

Finance officer Jim Watson told the executive that returns are expected to rise again after 2003.

He said the use of reserves could offset the impact of the shortfall this year but that '£670,000 is a very significant reduction for next year'.

On top of this shortfall the amount of government grant the council is likely to receive is expected to be £39,000 less than expected.

Cllr Norman Arnell said: "This is a more difficult situation than we have had to face before but it will be a good thing for the council as it means we will have to be totally focused on what we want to achieve."

The council tax figures will be set next year but even with an above inflation rise there could still be cuts or increases in the costs of services provided by the council.