With these grant increases and the stability provided by minimum increases there is no reason why we should see large increases in council tax next year

Stephen Byers

But the Tories and Liberal Democrats both disagreed, predicting householders could face hefty new bills when new council tax rates are set next spring.

Shadow local government secretary Theresa May said council tax had gone up annually by an average of three times the rate of inflation under Labour.

"Every year Labour make promises and every year they break them," she declared.

The 10% rise she spoke of would push the average band D property council tax to �991.10 from the �901 current average.

Don Foster, for the Lib Dems, said Treasury figures themselves suggested council tax would now rise by 6.8% on average.

Consultation period

He also protested that the 22.8% of total local government funding from Whitehall now ring-fenced in specific funds represented a "tightening of the government's iron grip on local councils".

The new financial settlement is open for consultation until January next year with the final figures due to be published in February.

They are the single largest determining factor in council tax levels and funding for services in all councils in England.

Mr Byers announced the settlement to MPs

Councils can spend above the level the government assesses they need, but they have to fund all the excess by raising the local council tax.

Mr Byers insisted it was a "generous" settlement, and announced it would be the last under the current formula - reforms would make it "transparent, fair and just".

He said under the settlement for next year a system of setting minimum and maximum grant increases would be extended to shire districts and police and fire authorities.

Maximum grants

There would be a minimum overall increase of 2.3%, the rate of inflation, but authorities providing education and social services would receive at least 4%.

Ceilings will also be imposed, but authorities with grants falling below the maximum will benefit from a �41m fund to cushion the shortfall.

The �47.3bn total broken down

Revenue support grant: �19.9bn Business rates: �16.6bn Special and specific grants: �10.8bn

"With these grant increases and the stability provided by minimum increases there is no reason why we should see large increases in council tax next year," Mr Byers declared.

He said Labour had increased local authority grants by �11.3bn since coming to office, which stood in "stark contrast to the final four years of the Tory government which saw a real terms cut in grant of 7%".

Claims rejected

But Theresa May told Mr Byers that local authorities and council taxpayers "will not welcome your statement".

"You tell us it is a generous settlement. You say there is no reason why we should see large increases in council tax next year.

"But we have heard that before. Every year the government promises a generous settlement.

"Every year ministers say there is no reason for high council tax increases and every year they have risen, on average, by three times the rate of inflation."

Many local authorities would be "struggling to maintain services" under the new settlement and council taxpayers face rises "well into double figures".