COUNCIL TAX rises should be kept below 5 per cent for each of the next two years after a £1.1 billion injection of extra cash to local authorities, ministers said yesterday.

Gordon Brown announced that councils would get an increase of £305 million in 2006-07 and £508 million in 2007-08, with most of the rise taken out of other Whitehall budgets.

Phil Woolas, the Local Government Minister, said that there was no excuse for excessive rises, and warned town halls that the Government would cap any increases over 5 per cent. Council leaders said that the increase was better than expected but cautioned that some authorities would still have to choose between raising taxes and cutting services. Excluding schools grants, local authority budgets will go up by 3 per cent next year and by 3.8 per cent the following year, nearly twice as much as councils had expected. Three weeks ago the Local Government Association (LGA) claimed that councils were facing a £2.2 billion blackhole, and gave warning of tax rises of at least 10 per cent.

But after meetings with John Prescott, the LGA secured an extra £300 million for 2006-07. Other departments have pledged £800 million for some of councils’ new responsibilities, such as licensing, child protection, housing asylum seekers and dealing with EU waste regulations. The Home Office is said to be providing an extra £150 million from its budget.

“Given this substantial investment, we expect to see the average council tax increase in England in each of the next two years to be below 5 per cent,” Mr Woolas said. “We have used our reserve capping powers for the previous two years to deal with excessive increases. Councils know that we are prepared to take even tougher action if that proves necessary. This settlement means that high council tax increases are a thing of the past, and we will not tolerate excessive council tax increases either next year or in years to come.”

Last night Sir Sandy Bruce-Lockhart, chairman of the LGA, said: “Local authorities around the clock will now have to make sure that council tax is kept as low as possible without having to cut services. Councils are making efficiency savings of £58 million a month, which is more than any other part of the public sector.”

Yesterday the Conservatives said that householders still faced council tax rises at twice the level of inflation. The Local Government Information Unit gave warning that the allocations, which are likely to hit metropolitan authorities the hardest, would leave authorities further overstretched.

A spokesman said: “The Chancellor gave us a lot of rhetoric about how he is safeguarding the needs of families, the elderly and young people, whilst through the back door he has said that he will not be supporting local government finances to the same tune as he did last year. By not plugging the funding gap he is directly affecting services to all these key groups. The reality is therefore somewhat different from the rhetoric provided in his statement.”

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