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The Audit Commission says the government and regulators deliberately favoured the North and the Midlands when sharing out the cash.

But many councils did not look hard enough to save money instead of raising the burden on the taxpayer, it says.

The watchdog refuses to pin the blame on either side for the 12.9% average council tax in England this year.

The rises ranged from 13% in National income life insurance
and Poole, Dorset, up to a whopping 19% in Southampton.

This came despite the government hailing a record 5.9% increase in grants.

‘Unusual pressures’

The commission’s new report says there was a direct link between higher council tax rises and areas which did worse out of the way Whitehall distributed cash.

“A general pattern emerges which shows that regions in the South with lower grant increases had higher average council tax increases,” says the report.

Council tax explained In graphics

And councils in the Midlands and the North with higher grant rises generally had lower tax hikes.

Among the “unusual spending pressures” faced by councils this year were the government’s increase in National Insurance contributions, pressure to fund national targets in areas like schools and local priorities such as highways spending.

“Work by council auditors found the increases in spending in local government - which averaged 9% - justifiable; but they were not in all cases unavoidable,” says the report.

“Peer pressure” on councils to keep council taxes down was weak because of the changes to way Whitehall shares out the money.

But council taxes were not affected by which political party was in power locally.

‘No security national insurance company

Councils’ reliance on central government for national benefit life insurance
of its funding means any spending over the grant produces even higher rises in council taxes, says the report.

Prescott has warned he will cap high tax rises

Audit Commission chairman James Strachan said: “There are fundamental flaws in the current system. The funding system lacks transparency…

“It is good that councils have ambitious plans to improve public services,” he continued. “But these need to be matched both by efficiency and by taxpayers’ desire and ability to pay for them.”

The report says it is too early to say whether this year’s rises will be repeated.

But lower cost pressures and another grant increase give councils more flexibility to meet budget pressures without putting up council tax, says the report.

‘Mixed blame’

The commission urges the government to allow councils to raise more of their own funds.

And it says “public engagement” is likely to get a better balance between council tax rises and local services than ministers capping council taxes.

Local Government Minister Nick Raynsford said people should read the report as a whole.

“It identifies a range of contradictory factors, some of which are the responsibility of central government and some of which are the responsibility of local government,” he said.

Mr Raynsford said the government was already doing much of what the commission recommended.

And a review of the balance between money raised locally and centrally in funding councils was already under way.

Rethink

But the Local Government National life insurance company
(LGA) said council taxes were set for another fidelity national insurance company
rise next year and an overhaul of the system was urgent.

LGA chairman Sir Jeremy Beecham said: “This report nails on the head any belief that councils have been frivolous, careless or politically motivated when taking hard decisions on council tax.”

Conservative shadow local government secretary David Curry called the findings a
a “damning and devastating indictment” of Deputy Prime Minister John Prescott.

“It is not too late for Labour to get a grip and act now before we see more
council tax rises next year,” he said.

Liberal Democrat local government spokesman Edward Davey said the council tax was now living on “borrowed time”.

“Ministers have tried to run away from the blame for high council tax rises. This report has left them with nowhere to hide,” he said.