£406m boost to stem council tax surge 'is sign of panicking'

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Labour fears of an electoral backlash over soaring council taxes were underlined yesterday when Gordon Brown announced £400m in emergency grants for town halls.

After record rises, averaging 12 per cent this year, the Chancellor made clear that he wanted councils to use the new money to keep bills down next spring. The extra cash comes three weeks after Nick Raynsford, the Local Government minister, announced the annual grant settlement for 2004/5.

The Tories and Liberal Democrats immediately seized on what they called a "panic" move that proved the inadequacy of government funding.

Mr Brown used the pre-Budget report to announce that he will give local authorities across Britain an additional £406m from next April, with councils in England getting £340m of that. This is on top of the additional £420m of grant support announced in the provisional settlement last month. The Chancellor said the new cash boost would not be ring-fenced, but he made clear that he wants local authorities to use the money to keep down future rises in council tax bills. The sums represented "cash to meet the needs and concerns of council tax payers", Mr Brown told the Commons.

Aides to the Chancellor said later that the Government would expect councils to restrict rises next year to "the low, single figures", adding that John Prescott, the Deputy Prime Minister, reserved the right to cap the spending of councils deemed to be levying excessive increases.

Council tax rose by an average of 12.9 per cent across England for 2003/2004, the biggest annual increase since the tax was introduced 10 years ago. There have been widespread protests against the scale of the rises, particularly from pensioners. David Curry, the shadow Local Government minister, said: "After having assured us that the Local Government Finance Settlement was adequate, Labour are now panicking and topping up funding with a further £406m. This last-minute ... repair job proves our point that the settlement was flawed in the first place."

Ed Davey, the Liberal Democrat Local Government spokesman, said: "This is an admission of failure but still doesn't deal with the inherent unfairness of the council tax."

During Prime Minister's Questions, Tony Blair told the Commons there were "fundamental flaws" in the council tax system but councils had a "measure of responsibility".

Next year, the Government will be providing total support to local authorities of £54.5bn.

Sir Jeremy Beecham, the Labour group leader of the Local Government Association, said: "Today's money is more than just a welcome sticking-plaster measure."