Council tax plans divide Tories

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Cabinet ministers are at loggerheads over proposals to lift restrictions on council spending and tax-raising in the run-up to the general election.

The move, backed by John Gummer, Secretary of State for the Environment, would allow local authorities to push up council tax bills next year. However, the Government would keep in reserve powers to cap council tax bills in cases where very large increases were proposed.

Gillian Shephard, Secretary of State for Education is thought to be sympathetic because the measure would ease the strait-jacket on education spending. At present councils have very little leeway over the amount of cash they can raise locally because of strict central government guidelines. The Conservative Party chairman, Brian Mawhinney, sees an opportunity to demonstrate the fact that Conservative councils cost less than their Labour counterparts. After a succession of council election defeats, there are few Conservative- controlled authorities left to embarrass the party hierarchy.

Moreover, Conservatives could use Labour's proposed tax rises as a powerful propaganda weapon in an election year. At a local level the Tories would promise measures to cut bills if they are returned in local elections, which could coincide with the general election.

However the Chancellor, Kenneth Clarke, and William Waldegrave, Chief Secretary to the Treasury, are deeply opposed to a move which would add to the public sector borrowing requirement. This would inevitably reduce the pot of money available for tax cuts, they argue.

Other cabinet ministers, including William Hague, Secretary of State for Wales and Michael Howard, the Home Secretary, are lining up behind the Chancellor.

Critics believe that the Government tends to get the blame for council tax increases even if Labour local authorities are responsible. Mr Clarke, who on Friday attempted to damp down expectations of big autumn tax cuts, won a similar battle against the spending ministers last year. One ally said yesterday: "We had a lot of discussions over that kind of option last year. At the end there was a clear majority against. I would expect the same this year."

Ministers may delay a final decision until the autumn when the Chancellor gets close to finalising his combined Budget and Autumn Statement on government expenditure. One source said that it was still early days and that no formal meetings had yet taken place over the issue.