The trick thing about the public sector is that taxpayers always end up paying for the mistakes made. This time "efficiency savings" will help Hammersmith and Fulham Council to cover its £173m pension fund deficit. In the last budget, "efficiency savings" meant 70% rise for parking charges and play care charges up by 156%, among many other increases, IT improvements and reduction of personnel. Director of finance, Jane West, told the press that further "efficiency savings" are expected and there will be no additional impact on the council tax as it is feared.

So, you might hear again next year that Hammersmith and Fulham have a comparatively "low" council tax increase thanks to "efficiency savings", but now the issue is a million pounds black hole in the council's finances. Again. First it was in April this year, when an audit found significant weaknesses of financial control and accountancy mistakes in the Council's accounts causing losses of £5,4m.

These losses alone would nearly cover Hammersmith Hospitals NHS Trust projected deficit, which will between £6-7 millions. Because of this accumulated deficit, Hammersmith Hospital's accident and emergency department could be closed as a way of cutting costs.

Now the losses are 24 times the trust's deficit or the equivalent of saving 24 A&E departments. The council has a £173m pension fund deficit after losing on equities during the three-year bear market. It results from holding 76% of its assets in shares since March 2000. With the stock market suffering three consecutive years of losses, the fund has seen its assets slump.

Not only taxpayers will pay for it via whatever it will mean the "efficiency savings", but also civil servants' contribution into the pension scheme will have to increase from 2005. And who will know if those millions were included in the next year's council tax since a significant increase is already predicted.

It is not new that there are huge holes opening up in pension funds at councils around the country due the stock market's crunch-time. What is happening is that the shortfall has been disclosed by new accounting rules, known as FRS17, that require all schemes to show the gains and losses in their pension fund on their main balance sheet. The point here is, apart of the consequences to taxpayers, how contributions are invested and the size of the hole.

76% of the funds were invested in equities, which is about 10 percentage points above the average for UK councils. This is after the council changed in 2000 its investment advisers UBS Phillips & Drew, whose fund manager Tony Dye was controversially claiming stock markets were overvalued. Since then, Goldman Sachs has run an investment strategy in equities and a bonds portfolio, while Legal & General manages another portion of the funds in an index-tracking scheme. The proportion of the funds invested in equities was increased from 73% to the current 76% and the deficit was last year of £65m and it is now 2.5 times higher.

It is not the first time Hammersmith and Fulham council has been unlucky in its attempts to play in the stock market. 12 years ago, the council was involved in the swaps scandal, when it ran up £200m of losses on £6 billion of money market deals.