A £3 MILLION "reward" given to Bolton Council by the Government is to be used to help meet its bill for compensation to women workers under an equal-pay settlement.

The council had wanted to borrow money from banks to meet the whole of the £8 million bill it is facing. But Ruth Kelly's Government department refused to allow it to take out a loan for that amount.

The Department for Communities and Local Government, which monitors borrowing, has instead allowed the council to borrow just £4.75 million.

So the council will now make up the difference with the £3 million it received from the Government for achieving an "excellent" grading in a review of its performance by the Audit Commission.

That money would have been spent on public services in the town.

Women council workers, including dinner ladies, cleaners and lollipop ladies, are being given compensation payments of up to £8,000 each because in the past they have been denied productivity bonuses given to men in equivalent areas of work.

Steve Arnfield, Bolton's director of corporate resources, said the council had hoped to fund the likely £8 million pay-out solely with the loan, but had put the money aside to be used in a worst-case scenario.

He added: "We, along with other local authorities, have been told we can borrow 57 per cent of what we asked for.

"We got the £3 million after we achieved targets, like reducing crime and improving benefit take-up, following a public sector agreement with the Government and will now use it for equal pay."

Around £500,000 of the council's £6.5 million in reserve has also been ear-marked to fund the pay-outs if necessary.

The £4.75 million loan will be paid back over six years.

Mr Arnfield added: "It will not affect council tax for 2007/08 but the year after we will have to start repaying the loan and that will cost £1.3million. That might impact on council tax or mean we may have to find more efficiency savings."

The council has already had to identify "savings" of nearly £11 million for next year, after its annual government revenue grant increased by only 3.3 per cent.

Council leader Cliff Morris, executive member for corporate resources, said: "I would have liked the full loan and we would have liked to have used the £3 million for other things but we have to find this money for equal pay.

"We got this £3 million because we are performing well as a council and it is being used for what it was put aside for."