Council tax could rise by five times inflation

London boroughs will get the all-clear today to raise council tax by five times the rate of inflation.

Local government minister Nick Raynsford dropped the threat of capping from councils in the capital - leaving householders to foot increases of up to 7.5 per cent.

The climbdown came after months of promises by ministers to overrule local authorities which failed to limit increases to "low single figures".

Overall bills will now rise by

5.8 per cent in the capital, costing taxpayers an average £61 extra. Ken Livingstone also gets the green light to push up his share by an inflation-busting

7.5 per cent to fund extra police officers and firefighters. Inflation is just 1.1 per cent.

Mr Raynsford was telling MPs which high-spending town halls around Britain will be forced to curb their spending. But Whitehall sources told the Evening Standard that those facing the cap were all outside London, leaving the 32 boroughs free to go ahead with their plans. Most authorities in the South-East will also be given free rein. Only six councils, three police authorities and five fire authorities are expected to face caps.

After an average increase of 13 per cent in council tax last year sparked protests from pensioners, Tony Blair's spokesman declared: "We are warning councils that these increases are not

acceptable - and next year we will consider capping."

In December, handing town halls £420 million in extra grants, Deputy Prime Minister John Prescott said: "The Government and council taxpayers now expect local authorities to deliver. Authorities must be in no doubt that I am prepared to use my capping powers."

Today's capping decision comes after authorities across the country have posted out bills.

Those told to lower their demands will be given a chance to appeal. If their pleas are rejected they will have to send out a fresh round of paperwork, in an exercise set to cost £7 million.

Ministers insisted that capping was necessary to protect taxpayers from unreasonable demands.

But the Tories - who pioneered ratecapping under Margaret Thatcher - called on Labour to leave budget decisions in the hands of local councillors. Conservative local government spokesman Philip Hammond claimed capping and rebilling "will burn more taxpayers' money than it saves".

He added: " Capping would do nothing to address the underlying driver of soaring council tax - fiddled local funding from Whitehall and a never-ending torrent of burdens, targets and redtape from John Prescott's interfering department."

The Local Government Association, which represents councils, blamed above-inflation rises on the Government for failing to fund extra spending in schools and social services. Its chairman, Labour council chief Sir Jeremy Beecham, called council tax "an inflexible property tax that doesn't grow as the rest of the economy grows".

The average bill for a band D home in London rises this year to £1,121. Bills for a band D home in London range from £597 in Wandsworth to £1,339 in Richmond - both Tory-run. The smallest increase this year was 2.9 per cent in Wandsworth, the biggest was 7.5 per cent in Bexley.

The Government has launched an inquiry into the future of the council tax which will examine adjustments including regional banding, new local taxes, restoration of councils' powers to set business rates, and even a Lib-Dem proposal for a local income tax.