Council tax to increase by double the rate of inflation

Council tax bills are set to rise by twice the rate of inflation in April, fuelling criticism that the Government is using town halls to collect a "stealth tax".

The annual financial settlement for local authorities, due to be announced on Monday, will pave the way for the tax to rise by about 5 per cent next spring even though consumer price inflation is running at 2.3 per cent. Such an increase would take the average bill for a Band D home in England from £1,214 to £1,274.

Council leaders accused ministers of trying to "bury bad news" by releasing their cash deal on Monday when it would be overshadowed by Gordon Brown's pre-Budget report.

John Prescott, the Deputy Prime Minister, is also expected to announce he is scrapping a rule which allows up to 1.4 million council staff on to retire on full pensions at 60.

He will provide a transitional period to 2013 to protect existing staff aged 52 or older but is likely to face a backlash from trade unions. It could deny local government workers the early retirement at 60 for teachers, health workers and civil servants that was preserved under a deal negotiated by Alan Johnson, the Trade and Industry Secretary.

Ministers and Labour MPs are worried about the impact of a sharp rise in town hall bills at next May's local elections. Vincent Cable, the Liberal Democrats' Treasury spokesman, said: "Gordon Brown has a serious potential problem here. Council tax rises will be capped but the Local Government Association believes there is a £2bn gap. Unless that is filled somehow it will be fairly drastic."

Mr Brown will preview themes of his pre-Budget report today, setting out how Britain can make the most of the opportunities of globalisation.

His plans include spending an extra £50m over the next two years to make the UK a world leader in stem cell research; a new national institute for health research in the NHS; and a new partnership with the pharmaceutical industry likely to boost its research budget by 30 per cent or £1bn in the long term. Mr Brown will say: "Each of us - companies, governments, and individuals - are having to respond to the scale, speed and scope of a transformed global economy. Like you I want a Britain that is a leader in the world's fastest-growing, most wealth-creating sectors at the cutting edge of global advance - in capital markets and financial services; in science and innovation; in creativity and enterprise; in skills and education."