Councils set to break cap on tax increases

Ministers are preparing to battle local councils across the country who plan inflation-busting increases in council tax of up to 23 per cent.

The Deputy Prime Minister, John Prescott, and Nick Raynsford, the local government minister, have warned councils that they face being capped if they raise council tax rates by more than 10 per cent.

A survey of nearly 50 local authorities by The Independent on Sunday has found that at least 10 councils propose double-figure increases - placing them in danger of government action.

Many more are considering rises of at least twice the rate of inflation, including Peter Mandelson's Hartlepool constituency, Leicester, Middlesbrough, Islington in north London, Southend-on-Sea, and North Somerset.

In several major towns and cities, the rises will mean council tax increases of £150 a year or more.

But ministers believe most of the offending authorities will be Liberal Democrat or Tory-controlled, and are putting Labour councils under pressure to squeeze spending and services to ensure rises are below 5 per cent.

After decades of Tory jibes that Labour councils are profligate, ministers believe they will be able to turn the tables on opposition parties.

Ten years ago, average charges for a band D property were £225 higher in Labour areas than in Tory authorities. That gap has now narrowed to £40, and current council tax rises may eliminate it outright.

Mr Raynsford, who sent warning letters to 31 councils about their council tax proposals, said: "A number of local authorities have talked about council tax increases in double figures, but in most cases they are coming right down.

"We have made it clear that we expect councils to reach low single figures. We will use our capping powers on councils that propose unreasonable increases."

Leicester, controlled by a joint Lib Dem-Tory administration, is planning increases of up to 14 per cent, taking the band D charge to over £1,100 a year. Labour-controlled Brighton will increase by up to 12 per cent, leading to a band D rate of roughly £1,200.

Some councils are spoiling for a fight with the Government, claiming they are being forced to put up local taxes to meet demands from ministers to spend fixed amounts on education and more on homelessness and social services.

Tory-controlled Medway council in Kent, which is planning a 15 per cent rise to £903 for band D, claims it has to raise local taxes because it has been ordered to meet higher spending demands.

But ministers will face difficulties in capping some very low-spending councils that plan high percentage increases, since the cost of the rise will remain modest.

Rates in Tory-run Rother in East Sussex could go up as much as 21 per cent, but that will still leave band D rates at just £139.

However, the battles over council tax rates will increase pressure on ministers for wholesale reforms of local government finance. Some experts have suggested introducing a new local income tax, which will reduce a council's reliance on grants from central government.

Sir Brian Briscoe, chief executive of the Local Government Association, said his organisation wanted councils to be given a fixed share of the income tax raised by the Inland Revenue to give councils much greater financial independence.

He said ministers should be keen to avoid a clash over council tax rises, and also insisted the vast majority of councils would rather not impose huge increases.

"I don't think ministers are keen for a fight over this," he said. "If Labour learned anything from the period of Margaret Thatcher's capping of authorities, they would know it's not a very clever idea. It makes the Government responsible for everything - council tax rises and the delivery of services."