Average rises of 4.5% are expected to be announced on Thursday

Scotland's 32 councils are expected to impose average council tax increases of about 4.5% when 2006-07 budgets are set on Thursday.

In an on-going disagreement between councils and ministers, Cosla warned hikes could be much bigger next year.

The executive hinted it would use its capping powers to block huge increases.

Finance Minister Tom McCabe told the Scotland on Sunday newspaper: "We have always said the powers are there and if people are talking about these levels, then they should be aware that every action has a reaction."

Another controversial savings proposal could include merging smaller councils, such as Clackmannanshire with Falkirk or Stirling.

'Funding shortfall'

However, it is understood that the executive would be much more likely to urge neighbouring councils to consider sharing more back-office costs.

The executive is giving councils �8.3bn core funding for 2006-7 and plans to provide �8.5bn in 2007-8.

But Cosla claims councils are receiving �400m less than they need to deliver local services, including executive-set priorities, and council tax will continue to increase.

A 4.5% rise this week and a 15% hike in a year's time would see average Band D bills rise by �221 to �1,315.

We're talking about cuts in key services, such as care for the elderly, teachers, social work Brenda Campbell Cosla

Councils are also facing a �560m bill to implement an equal pay agreement for staff.

Mr McCabe suggested that "serious questions" needed to be asked of council executives for allowing their liabilities to escalate.

He said voters were becoming "tired" of council warnings about future bill increases.

Cosla head of finance Brenda Campbell rejected the criticism, and said this week's increases were kept to a minimum through "good financial management", including "ruthless" cost-cutting.

She said ministers needed to meet their pledge to review funding to councils for 2007-08.

"We need long-term sustainable funding put into our base budgets, not short-term initiatives," she said.

Ring-fenced funds

"Councils have made the soft cuts so we're not talking about closing the swimming pool on a Tuesday when hardly anyone uses it, that's been done.

"We're talking about cuts in key services, such as care for the elderly, teachers, social work."