Funding from chancellor keeps down council tax rises

Council tax rises in Britain next month will be the lowest for 10 years but still twice the level of inflation, according to a detailed survey published today.

It shows that in England householders will face a 4% increase, almost 2% down on last year, bringing the average Band D property up £47 to £1,214 for 2005-6.

In Scotland, a 3.9% increase or £41 to £1,094, is forecast, while Wales fares significantly better. Although a 4.3% rise is on the cards, householders will face a £38 increase to give householders in the average property a bill of £925.

The organisation behind the survey, the Chartered Institute of Public Finance and Accountancy, which represents council treasurers, warned that next year town hall bills could be much higher.

This is because the chancellor, Gordon Brown, has pumped an extra £1bn into council finances to keep rises down in the run-up to a general election.

Steve Freer, the chief executive of the institute, said the extra funding coupled with the government's threat to cap the budgets of higher spending councils had limited increases.

Last year five councils and one fire authority were capped and the government has already written to 17 councils warning they are in the firing line for 2005-6.

While Mr Freer said councils had worked overtime to limit rises, he warned of higher increases next year if the government failed to pump extra money into town halls.

"It is now more important than ever to address the question of how a better system of funding for local services can be developed," he added.

Councils needed a strong tax base to make them less reliant on the government, which provides around a quarter of authorities' funding directly and indirectly.

According to Mr Freer this could be done either by returning business rates to local government - they were "nationalised" in 1991 - or by introducing a local income tax to supplement the council tax.

Last week the Local Government Association warned of a £1.5bn "black hole" in town hall budgets in the 2006-7 financial year.

But the local government minister, Nick Raynsford, is challenging authorities to make substantial savings to keep budgets down.

Councils have already been told to make savings of £6.5bn over the next three years.

The Conservative local government spokesman, Caroline Spelman, accused Labour of "cynically" pouring more money into town halls to keep rises down in an election year. She warned that householders were facing big increases with work now beginning on the first revaluation of properties for 14 years.

However, Mr Raynsford accused Tories of "hypocrisy", claiming that planned savings already earmarked by the shadow cabinet would mean either large cuts in local services or high council tax increases.