Rent rises and reduced services could help Cherwell District Council out of a council house finance dilemma.

The proposals are part of a six-point emergency plan that could come into effect if the proposed sale of the council's 4,000 homes to a housing association falls through.

The hard-up council hopes to raise £40m from the sale.

It is struggling with rising costs, a fall in investment income and cuts in Government grants, prompting a warning that its share of council tax bills could rise by 26 per cent next year.

The housing sale could fall through because Cherwell is running out of time to set up the deal and tenants could vote against a transfer.

The council would then be in the Catch-22 situation of being unable to sell the houses while not having enough money to maintain them.

Contingency plans have been drawn up to deal with such a situation. The ideas include:

Imposing the maximum permitted rent increases

Reducing services to tenants

Using external managers to run housing

Transferring homes to a housing association under a 'trickle transfer' policy. which is when houses become empty they are sold on

Transferring up to 500 houses to a housing association under a voluntary transfer scheme

Encouraging tenants to buy their homes.

The plans have been recommended by the council's executive, but other councillors have questioned the proposals under scrutiny rules.

The community select committee will discuss the issue on Tuesday. The executive member for housing Andrew Fulljames and the council's housing consultants will be at the meeting.

Mr Fulljames said that to comply with Government rules, the transfer to a housing association had to be completed by the end of next year and a tenants' ballot was unlikely before the summer, leaving little time to complete a sale.

He added: "The best option is the sale of all the houses, but if that cannot be achieved we have to do something else, along the lines suggested."