MSPs exploded ministers’ claims that council tax rises next year could be pegged at 2.5 per cent, saying it was possible they could even reach 6.6 per cent.

A devastating report from the Scottish Parliament’s cross-party finance committee on the Executive’s draft budget for the next financial year also said that, despite ministerial protestations to the contrary, councils were facing a funding shortfall of £85 million, as well as having to find £58.5 million in efficiency savings.

The report also attacked the Executive for treating local government unfairly by telling councils to make efficiencies far in excess of what was being demanding from some ministers’ own departments.

The committee, which has a majority of Labour and Liberal Democrat coalition MSPs, said the funding “black hole” left councils with the options of raising council tax, cutting services or further efficiencies.

“If the gap was met entirely from council tax, it would imply increases of the order of 6.6 per cent,” the report said. “The Executive’s target is 2.5 per cent and the committee thinks that the reality will be somewhere between the two figures on current assumptions.”

As well as highlighting the different way that councils and Executive departments were being treated in the search for efficiencies, the report said that Executive departments were being allowed to reinvest savings while efficiencies made by councils were being cut from their individual allocations.

The Executive described the committee’s predictions as misleading and alarmist. A spokeswoman added: “We believe we have given local authorities increases in funding over the years that allow them to maintain council tax at a reasonable levels.”

Jack McConnell, the First Minister, has said there is no need for average bills for Scotland’s 1.5 million council tax payers to rise by more than 2.5 per cent from next April. Tom McCabe, the Finance Minister, has indicated that he agrees with this.

There have been predictions from some councils, however, that in the face of what they claim was an “unfair” funding settlement, average band D council tax bills could rise by at least £50, or 4.6 per cent, to £1,144. A 6.6 per cent increase would mean a band D annual average payment of about £1,164.

Des McNulty, committee convener and a Labour backbencher, said the report raised questions over what he called the inequitable treatment of local government. “We are asking the Executive to look again at the efficiency savings it has set for its own departments and to look again at its approach of imposing budget cuts in areas which affect frontline services, such as local government,” he said. “Councils have been hit with bigger targeted savings, which come off the cash given to councils by the Executive.”

The MSPs on the committee also noted the extra cash allocated by Gordon Brown, the Chancellor, to hold down council tax rises in England.

Opposition parties seized on the committee’s findings to claim that ministers were “sticking their heads in the sands” and to call on the Executive to respond positively to the report. John Swinney, SNP Shadow Finance Minister, said that ministers had to react to prevent further pain for council taxpayers.

Derek Brownlee, the Scottish Conservatives’ finance spokesman, said that while his party was in favour of efficiencies right across government, local authorities had to be given sufficient breathing space.

Councils said the report showed they had been right all along. Pat Watters, president of the Convention of Scottish Local Authorities, said: “There is no way we can keep council tax rises to the levels we would all want without significant cuts in services to local communities. That is the stark choice councils are facing. At times I have felt I have been banging my head off a brick wall but the recognition from the finance committee is most welcome.”

Meanwhile, claims that the Executive is hoarding a £1.5 billion pre-2007 election war chest at the UK Treasury were being discounted by sources on the finance committee, which had originally sought details. The sources said that of £1.5 billion earmarked for Scotland but not included in present budgets, almost £1 billion was already earmarked for future spending but was not yet needed. Another £280 million had already been set aside to fund business rates cuts over the next two years, putting the true scale of the alleged “war chest” at just £220 million.

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