Hilary Armstrong: "Generous settlement"

Speaking ahead of the announcement Local Government Minister Hilary Armstrong insisted that no tax-payers will face "excessive rises".

She told BBC Radio 4's Today programme: "No council should have the need to raise council taxes by more than 4.5% next year.

Hilary Armstrong: "No tax hikes of more than 4.5%"

"This is the most generous settlement since the introduction of council tax. It gives an overall increase above inflation of about 2.3% in each of the next three years."

But the Liberal Democrats have predicted council tax bills could rise by as much as 8% on average.

Their spokesman Paul Burstow MP said the settlement would be a "smoke and mirrors exercise" and predicted some money would be taken away from London authorities.

Under the settlement, councils can spend above the level assessed by ministers, but they have to fund the excess by raising council taxes.

In opposition, Labour accused the Tories of fiddling the system to pump cash into Tory councils.

Now it is in government, Labour says it has begun redressing the balance.

But the Tory shadow for the Environment, Transport and the Regions, Gillian Shephard insisted taxes will rise dramatically.

"Last year ministers promised rises of no more than 7% and in fact some areas council tax rises were increased by up to 15%," she said.

Labour says higer spending will mean better educational services

Labour's Comprehensive Spending Review, outlined in July, indicated the sums being allocated in each of the next three years are likely to be above the rate of inflation, in order to reflect government priorities for increased spending on education and public services.

'Fair to everyone'

Northern Labour MPs have been lobbying for a reduction in the weighting that authorities in London and the south east receive and the government is likely to heed them.

Ms Armstrong said the government was trying to achieve: "Fairness for all councils, not loaded in the interests of one area against another, not trying to set north against south and everybody against London, rural against urban."

She said: "It seeks to be fair to everyone."

The Lib Dems criticised last year's 8.6% increase, saying it would spark huge rises in council tax.

This year, they say there will be a gap of £1.6bn between what the councils need to maintain services and the expected level of government funding.

They have also warned that social services and police budgets especially will be under severe strain next year.

New services targets

The local government settlement follows Tuesday's bill scrapping universal rate capping and compulsory competitive tendering, introduced under the Tories.

In its manifesto, Labour promised to modernise local authorities and put them in closer touch with their communities.

The bill requires councils to set new and demanding targets for each service and publish them in local performance plans, as well as being open to new external audits.

Typically, when the annual support grants are announced, local authorities say they are being under-funded and that council tax increases have to be huge.