Ministers bear brunt of blame for record council tax increases

This year's record council tax rises were due in large part to the Government's changes to town hall finances, an independent report will declare today.

In the most comprehensive analysis yet of the bill increases, the Audit Commission said that there was a "clear assocation" between Whitehall grants and the level of council tax. The degree of support from central Government was one of the "main factors" underlying the 12.9 per cent average hike in the tax in 2003/4, the report says.

Another key factor was the greater pressure to increase spending to meet higher national insurance contributions, teachers pensions and council staff pay rises. Such pressures contributed to more than half the total increase in spending this year.

Other reasons for the record increase in bills included a failure by some town halls to make efficiency savings or dip into their reserves.

There was also a "fundamental flaw" in the council tax system of gearing, which meant that councils had to raise taxes by 4 per cent for every 1 per cent increase in spending, the Commission found.

Both the Tories and the Liberal Democrats seized on the report, claiming that it was a "damning indictment" of John Prescott's policies for local government.

Nick Raynsford, the Local Government Minister, appeared to concede that the Government had been partly to blame for the increases.

"[The report] identifies a range of contradictory factors, some of which are the responsibility of central Government and some of which are the responsibility of local government," he said.

However, Mr Raynsford said councils had received record increases in grants and he reserved the right to cap high tax authorities next year.

The Commission's report stated that the pressure on spending this year was "exceptional" and predicted council tax rises would be lower in 2004/5.

Government grant redistribution last year left the South with lower grant increases and higher council tax rises, while those in the Midlands and the North had higher grant increases and lower council tax rises.

James Strachan, the Commission chairman, refused to blame any single faction but said there was "absolutely" a "visible correlation" between the level of grant received and level of council tax imposed.

New spending pressures included the need to provide social services to an increasingly elderly population, national policy priorities such as school funding and waste recycling targets.

Mr Strachan highlighted the fact that there was no causal link between tax rises and the party political leadership of a council. But his report stressed that though the additional spending was "justifiable", it was not always "unavoidable" and pointed out that some councils managed to keep bills low even though they had been dealt a poor hand by Whitehall.

It suggests that councils should raise more than the 25 per cent of their funds allowed at present. However, to prevent even higher council tax bills, it recommends more charging for services, return of business rate to local control and even the Liberal Democrat idea of a local income tax.

Sir Jeremy Beecham, chairman of the Local Government Association, said: "This report nails on the head any belief that councils have been frivolous, careless or politically motivated when taking hard decisions on council tax and spending on vital services."

David Curry, shadow Local Government Minister, said: "This independent report has said what Conservatives have been saying all along - this year's council tax rises are the fault of Labour and John Prescott."

Edward Davey, for the Liberal Democrats, said: "The Audit Commission has made it official: Labour has made this unfair Tory tax even worse."

* A lottery to raise £750m for London's bid to host the 2012 Olympics could begin in 18 months. Some £625m would also come from council tax increases of around £23 a year per average London household.