John Prescott: The best settlement for 7 years

John Prescott says the deal is fairer to all

Mr Prescott told the Commons that education would get an extra £1.4bn - an increase of 7.2% - and there would be over £500m extra for social services.

The total government contribution to town hall spending will be £50.62bn - a rise of 5.4% on last year's figure, Mr Prescott said.

The average council tax increase would be 4.5% if local authorities increased their spending in line with government grants, he added.

Gillian Shephard: This will put up taxes

And the deputy prime minister, who is also in charge of the regions, environment and transport, warned that the government would not hesitate to act over excessive council tax increases.

"I make this guarantee for next year. No local authority, north or south, will receive less government grant support next year than they did this year," he said.

"It follows that there is no case for steep council tax increases."

Tories predict bigger bills

But Shadow Environment Secretary Gillian Shephard branded the figure "a settlement for no change" which she said would lead to increased taxes for ordinary families.

Council taxes will rise, says Gillian Shephard

"You have promised jam tomorrow. Ordinary families know that the bill will arrive next year," she said.

Mrs Shephard said that the increase to fire services was not even enough to meet the 5.6% pay award to firemen, and said this would mean cuts in fire services.

Giving a statement in the House on the settlement, Mr Prescott said it allowed extra spending and extra protection for the taxpayer, a fairer distribution of grant, and three years of funding stability.

"Total standard spending is the total amount of local authority spending to which we are prepared to contribute. Next year this will be £50.62bn. This is £2.6bn more than this year - an increase of 5.4%."

Mr Prescott said that over three years, total standard spending assessments would increase by about 7% more than expected inflation.

"This new certainty helps councils plan ahead with greater confidence. Better forward-planning and greater flexibility mean better standards of service and better value for money."

Tax payers 'protected'

But he said: "We have to protect the country's interest as a whole. We will not pick up the cost of excessive council tax increases through higher council tax benefit subsidy payments."

Labour says higer spending will mean better educational services

He said the government was asking the council taxpayer to contribute a fair share to the cost of providing local services - "no more, no less".

Mr Prescott said: "There is no justification for excessive council tax increases. If we are faced with such increases we shall not hesitate to act."

He said the deal ensured that no council would lose grant, and protected council tax payers from excessive rises in bills.

He told Mrs Shephard rural areas would receive more cash and the fire services settlement took into account all the pressures facing local government.