Minister admits council tax cannot rise much more

Council tax levels have reached "the limit of acceptability", the Government admitted yesterday amid fears that soaring bills could undermine Labour's popularity.

With hundreds of pensioners across the country already refusing to pay this year's charges, ministers have now been forced to look at other ways of raising revenue.

And the Local Government Association (LGA) has warned that next year could see even higher rises as councils struggle to meet yet more Government pledges on education and social services. The average council tax for a Band D household soared over the £1,000 mark for the first time this year. Some councils have imposed a 46 per hike in rates this year, while the average charge has risen by 12 per cent. In the 10 years since the council tax was introduced, the average bill has doubled from £568 to £1,102.

Local Government Minister Nick Raynsford said yesterday: "We have quite a lot of evidence that illustrates that the council tax is very near the limit of acceptability in a number of areas. The increases in the last two or three years have really taxed the patience of a lot of people. They have been very substantial increases and we have to look at options for change, including the possibility of finding other sources of revenue."

The Government has set up a review to examine the way in which councils are funded, with a view to dramatically increasing the proportion of revenue raised locally.

This year, the Chancellor Gordon Brown gave councils the right to retain some of the Uniform Business Rate (UBR) collected from local companies. The central-government imposed and collected UBR was introduced by Margaret Thatcher in 1990 in order to prevent Labour councils from using the old local business rates to fund higher spending.

Ministers hope that by allowing local authorities to keep some of the revenue raised by the UBR, council tax rises will be kept to a minimum next year. But the plan is opposed by industry bosses, who say it could result in businesses becoming victims of spiralling public spending instead.

Ruth Lea, head of policy at the Institute of Directors, said the idea would not be very velcome at all. She said: "Business will be very concerned at any attempt to raise more taxes and use the UBR as the milch cow for local authorities."

The Balance of Funding review, which closes its consultation period next week, is considering even more radical reform for local government finance.

The proposals include switching the balance so central Government funding falls from 75 per cent to 35 per cent of council revenue.

Local authorities could be allowed to raise money from sources such as local income taxes, green levies and congestion charging - all to provide more direct access to funds.

But opponents say this would leave poor and deprived local councils even worse off.

Opposition to the huge hikes in council tax rates has grown massively over the past year, with dozens of local action groups now running civil disobedience campaigns in which people are refusing to pay their council tax.

Pensioners have been particularly hard hit by the above-inflation rises and many are pledging to not pay.

Among the most vocal is the Devon Pensioners Action Forum, where more than 250 elderly activists are risking jail by refusing to pay the full charge, which was raised by 18 per cent this year.

Instead, they are paying their own version of the tax, which they say is linked to the 1.7 per cent rise in their pensions.