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Councils must raise their council tax by less than 5% – or once again face the threat of capping, local government minister, Phil Woolas, has said. Announcing the annual finance settlement, which held no surprises for local authorities, the Government pledged revenue grants of £65.7bn in 2007/08. Formula grants, excluding ring-fenced grants, will total £25.6bn, an increase of 3.7% on the previous year. The Department for Communities and Local Government has warned councils it would not tolerate ‘excessive' council tax increases. Mr Woolas said: ‘We have used our reserve capping powers in previous years to deal with excessive increases and won't hesitate to do so again, if that proves necessary.' All councils will receive a minimum increase of 2.7% in grant compared with the current rate of inflation, which stands at around 2.5%. But, according to the Local Government Association, public sector inflation is running at a much higher rate than many other indicators. Councils face rising costs in adults' social care – by around 2% above inflation each year – and the costs of privately-run children's care homes rose 45% between 1999 and 2004. Between 2003/04 and 2004/05, local authority spending on energy increased by 12%, while public sector building inflation rose by 56% between 1998 and 2005. The Local Government Association (LGA) has also disputed Mr Woolas' claim that the Government has increased spending by 39% since 1999. Its chair, Lord Bruce-Lockhart, said: ‘For services other than schools, which are clearly a priority, government funding has increased by just 14% in real terms. This is in stark contrast to the 90% provided to the NHS.' The tight finance settlement is perhaps a stern warning of things to come in the Comprehensive Spending Review (CSR07), due out next summer, which will outline the Government's spending plans for the next three years. London Councils chairman, Merrick Cockell, said London councils would ‘face tough choices between cutting back services or increasing council taxes'. And last week, chief secretary to the Treasury, Stephen Timms, warned the public sector it would have to increase efficiency savings by 3% in next year's CSR. He also said the Government would be looking for pay settlements of less than 2%.

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FINANCE

Grant scrapes 3.7% as ministers threaten cap

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