Taxpayers are facing massive service cuts after Birmingham City Council was handed a £757 million bill to settle equal pay claims.

The huge cost of paying off mainly women workers who missed out on bonuses will leave the authority paying out £75million a year by 2016.

Council leader Sir Albert Bore admitted the situation was “horrendous” – and warned the bill was likely to rise still higher after 174 former workers won pay claims at the Supreme Court last month.

“I believe that figure will grow over the next year or so and that leaves us in a horrendous situation,” he said.

“In any single year £75 million is a huge sum. We face some very difficult decisions.”

Coun Bore ruled out a large council tax rise, pointing out that a one per cent increase only raised £2.5 million – meaning services would be cut.

The council, the largest local authority in Europe, has been loaned £429 million of the money by Government to settle claims, and hopes to be able to borrow more.

Sir Albert admitted that “in hindsight” the authority had failed to get to grips with equal pay over many years, but said the legal interpretation of equal pay law had also frequently changed.

“The changes in law have always been in one direction, in the claimants’ favour,” he added. Together with payments on earlier borrowing, such as loans to upgrade council houses or pay for the new Library of Birmingham, the council could be see as much as a third of its £1 billion revenue budget set aside for debt repayments within a few years.

The council’s official auditor accountancy firm Grant Thornton has concluded that the while the authority offered value for money across the board and managed its finances well, the impact of equal pay costs was a major concern.

Regional secretary of the council’s largest trade union Ravi Subramanian said: “We must not lose sight of the fact that these payments are for women workers who were systematically discriminated against by the city council over many years.

“Unison is firmly of the view that the blame for this lies with the previous Tory-Lib Dem administration who should have resolved this years ago. We have consistantly raised the issue of equal pay over the last six years, through both collective negotiation and legal cases.”