Tower Hamlets Borough Council in East London claims its publication East End Life only costs taxpayers £118,000 a year or 2.3p per issue, with the rest of the 1.56m a year cost met from advertising.

But a report shown to councillors last week has revealed that the paper, dubbed a "propaganda sheet" by critics has suffered a £396,000 shortfall in advertising revenue due to the credit crunch.

The Labour-run council has agreed to bail it out - but East London Advertiser editor Malcolm Starbrook has repeated his calls for the publication to be scrapped

He told HTFP: "The bail out makes a mockery of the council's claim that its propaganda sheet operates on an almost break-even budget.

"In the past the council has stated that each copy costs every Tower Hamlets tax payer a mere 2p: we know that is wrong.

"Our figures show that at best the cost is 25p per reader and comes out of the council taxes of one of London's most under-privileged communities. The council has recently raised its distribution levels and now finds its ad budget is tumbling. The individual cost per copy is rising at the same time.

"When the town hall's budgets are being squeezed in education, health and social services, the financial lifeline thrown to East End Life, which exists purely to promote a one-party political agenda, is appalling."

A previous investigation by the Advertiser showed that public-sector organisations paid a total of £980,000 to advertise in East End Life, making the true cost to the public purse £1.1 million a year.

An alternative budget put forward by Tory councillor Tim Archer earlier in the year suggested the council could save £670,000 or 1pc off the average council tax, by scrapping the paper and taking out advertising with the Advertiser instead.