Leicester city council said there would be major improvements by the end of the financial year in March 2005.

New computer problems were blamed for the shortfall the ruling cabinet heard.

Improvements include bills accessible on-line and electronic payments by phone so people can pay with bank cards without talking to staff.

Prison threat

A report to the cabinet said 94% of council tax and 98.5% of business rates will be collected by March 2005.

It asks for backing for an improvement plan including "strong collection enforcement" and committal to prison for non-payers.

Early this year, the council mounted a campaign to encourage people to claim council tax benefits and to seek help if they had payment problems.

Councillor Andy Metcalfe, cabinet lead for housing, said: "It is important we get out the message that non-payment is not an option.

"Those who don't pay are adding to the burden to be borne by good payers."

Council leader, Cllr Roger Blackmore, said: "We have been keen to secure improved collection rates both in the interests of local taxpayers and as part of our drive to increase efficiencies with the authority."