The Chancellor has been accused of delivering a £1.1bn "bung" to buy off council tax payers and see Labour through the local elections next year, which the Tories were hoping would be a springboard to a good result in the next general election.
Council tax rises could be more than double the rate of inflation next Spring, but council leaders said last night that Gordon Brown had taken the sting out of local government finances for next year.
Local government leaders had warned they were facing a £2bn "black hole" that could lead to average band D council tax bills rising by more than £100 a year to about £1,314. However, the additional hand-out to councils will mean that the rise should be limited to 5 per cent, about £60 a year on band D homes.
"It looks like a pre-election bribe to help Labour through the local elections," said one senior council official.
The Treasury provided local authorities with £800m to meet additional burdens on councils, such as the new licensing scheme for selling alcohol, the detention of asylum seekers, and extra pension costs for local council staff.
In addition, Mr Brown provided £305m on top of the increases pencilled in for next year and announced an extra £508m for the following year, as part of a new two-year deal. It means most councils will be able to meet the order by John Prescott, the Deputy Prime Minister, to levy increases of less than five per cent or face capping.
The Local Government minister, Phil Woolas, said: "This settlement means that high council tax increases are a thing of the past. We will not tolerate excessive council tax increases either next year or in the years to come."
Many councils in areas where there were protests by angry pensioners who are unable to afford their bills will receive above average additional money from the Government. They include Christchurch in Dorset, which will gain an extra 6.5 per cent in funding, and West Devon, which gets an extra 7.2 per cent.
However, it appeared last night that a £200 pensioner discount this year will not be repeated in 2006, opening the Chancellor up to the charge of using the payment to ease pensioners' financial problems before this year's general election.
Councils will also be allowed to raise more funds by new charges for items such as planning and waste disposal but no details were available on these last night, pending consultations with the Government.
Those on low fixed incomes, such as pensioners, are unlikely to be satisfied until the Government changes council tax to reflect incomes. An interim review of council tax by the Lyons commission is due shortly, but the full report will not be complete until 2007.
London boroughs, which are up for election on 4 May, could face more of a financial squeeze. Their increases in money from from Government are being limited to 2.5 per cent. Former local government minister Nick Raynsford, the MP for Greenwich, warned ministers that they may have got their priorities wrong, having awarded Rutland 6.8 per cent. Local government chiefs said Ken Livingstone, the mayor of London, may decide to break the five per cent limit with his local government precept, which will be increased by £20 per council tax payer to help pay for the 2012 London Olympics.
Sir Sandy Bruce-Lockhart, the Tory leader of the Local Government Association, said the deal was "better than expected" but still left many councils having to face tough choices between council tax increases and cutting services. Officials have said that education spending has been protected, which means that social services are most at risk of cuts.
Eric Pickles, the Tory spokesman on local government, said: "We will see significant cuts in services. We will also see the sad parade of old age pensioners being threatened with jail."
'Elderly people will be happy something is being done'
Betty Pavey, Pensioner
Betty Pavey and her pensioner neighbours in Bournemouth had been braced for another council tax rise next year. She greeted the Chancellor's announcement yesterday with a mixture of resignation and concern.
She welcomed Gordon Brown's attempt to prevent a huge rise in council tax but believes even a small increase will impact on the elderly and young families.
Mrs Pavey, a retired health service worker in her Seventies who works part time at Age Concern in Bournemouth, receives a state pension of £150 a week, from which she pays £50 a month towards council tax.
The Chancellor's announcement of an additional £813m funding for local government over the next two years in a bid to hold down council tax rises, may mean a rise in council tax of less than 5 per cent in the next budget.
"At least this means it's not a big rise as it could be but none of us like an increase. I imagine it will feel a lot to some people, particularly the elderly and young families who really are struggling.
"They have to pay rent for accommodation so cannot save for a mortgage deposit. I think the elderly people of Bournemouth will be happy that at least something is being done to hold back a big rise in council tax," she said.
She added that she was keeping an open mind to the rise, however small, and whether it would be paid back in kind with the benefit system, for old and young.
Mrs Pavey, who has mainly voted Tory but is now undecided, said, unlike many, she would not be casting her next vote based on this issue.
She said there were some of her peers who were disgruntled by having to pay council tax, which is calculated on the size of the property, and believes an alternative kind of taxation may be fairer for the elderly.
"A lot of people who are living in big properties are selling their houses because they cannot afford the cost of staying in their own homes.
"This does not apply to me but some folk such as widows are having to pay council tax on their property," she said.