Tens of thousands of householders across the city are now being urged to assist a battle for more Government cash after the council has identified a £3m gap in next year's budget.

Dramatic rises in fuel costs, coupled with the extension in April of the Government's concessionary bus fare scheme for the over-60s have accentuated an already precarious financial situation at the authority.

The city's ageing population has also compounded the problems with growing financial pressures on the council's care services.

The Government's landfill taxes have added pressure to the budget, in spite of York Council's efforts to prevent waste ending up in tips which have seen recycling rates reach 45 per cent.

The council has long maintained it is a victim of a lack of Government funding, meaning that residents have had to shoulder the responsibility for financing services ranging from refuse collection to social care.

The city traditionally has one of the lowest council tax bills in the country, but York Council has imposed a series of above-inflation increases in recent years to ensure it has adequate finance at its disposal.

However, the financial situation has deepened amid the economic gloom which is enveloping the nation and council leader Andrew Waller warned yesterday that "extremely difficult decisions" would need to be made ahead of the new financial year. Coun Waller said: "We are not asking for a special deal from the Government, just a fair deal.

"York has historically had to deal with significantly less funding than other similar unitary authorities – we have about £200 less to spend per head of population. But there are a number of issue which are converging at the same time which is making the budget for the next year the most challenging ever.

"Our objective is to maintain a level of quality services and protect the most vulnerable members of society, but the public needs to understand that there will be some extremely difficult decisions we have to make."

In spite of hitting the Government's target of £10m in savings over the last three years, York Council is now embarking on another round of investigations to establish where costs can be cut back from services.

A questionnaire is being sent out to 90,000 households across the city to gather the public's opinions over which services should be prioritised.

Coun Waller urged the city's taxpayers to write to the council so officers and members can petition Government ministers for more funding.

The council's had expected its income to rise by £4m for the next financial year through a combination of council tax increases and funding from Westminster. However, costs are now predicted to soar by £7m, leaving a £3m shortfall in the council's budget of £110m.

An annual shortfall in funding from central government has arisen out of a perception that York has, historically, been seen as an affluent city, so Westminster cash has been diverted to more socially deprived areas.

The city's annual funding settlement from the Government rose by 3.2 per cent for the 2008/9 financial year, compared with an average rise nationally of 4.8 per cent.

Almost every household has faced a rise in annual council tax bills, with the average band D property billed a total of £1,280, an increase of more than £57.

The Department for Communities and Local Government (DCLG) said: "Both central and local government are feeling the pressure of the economic downturn. But we would expect councils to manage these costs like any other organisation."