Brown urged to cap council tax after local election losses

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Gordon Brown is under pressure to prevent a further rise in council tax bills over the next two years after last month's 13 per cent average rise was blamed for Labour's losses in the local elections.

Gordon Brown is under pressure to prevent a further rise in council tax bills over the next two years after last month's 13 per cent average rise was blamed for Labour's losses in the local elections.

When the Cabinet discussed the election results on Thursday, ministers agreed that three issues had contributed to Labour's loss of more than 800 seats: council tax bills, anxiety over asylum-seekers and opposition to the Iraq war. "The levels of council tax was a big issue on the doorsteps," a senior Labour source said. "There is no doubt that the Government, rather than the local authorities, is getting the blame."

Ministers have been worried for some time that Labour would pay a price for the inflation-plus rises in recent years. Peter Hain, the Welsh Secretary, has told colleagues that council tax could become as unpopular under Labour as the system of rates, which persuaded the Thatcher government to bring in the poll tax.

Bills have almost doubled since council tax replaced the much-criticised poll tax 10 years ago. The average tax for a Band D property in England, which was £534 in 1993, has risen by 94 per cent to £1,102. The Independent disclosed last month that town hall bills were likely to rise by a further £2bn, about £80 per household, over the next two years.

After raising national insurance contributions by 1p in the pound to boost the health budget, some ministers fear Labour will be hit by a "double whammy" on tax at the next general election unless Mr Brown softens the blow. But the Treasury is likely to be reluctant to find extra money for local authorities when it runs a government-wide spending review next summer. Treasury sources insist the level of council tax is a matter for each local authority and that town halls received what they accepted was a generous settlement.

Central government grants are to rise in 2002-03 from £37.6bn to £45.8bn in 2005-06, an average increase of 3.9 percentage points above the inflation rate.

Treasury ministers dismiss Opposition claims that council bills have become another "stealth tax" as Mr Brown struggles to balance the books after his big increases in spending on public services. The small print of last month's Budget reveals that the Treasury is predicting a £2.2 bn increase in local government spending between 2004 and 2006. The projections have been revised upwards since last November.

Research by the House of Commons Library concluded that the Treasury had to increase its estimates because of recent council tax hikes. It said: "As council tax settlements have been somewhat higher than assumed, around 13.5 per cent compared with an assumption of around 8 per cent, the projections are ... higher than in the 2002 pre-Budget report."

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