Local authorities say Chancellor Alistair Darling’s announcement of an extra 2.6 billion pounds in central government grants to English local authorities over the next three years represents the worst settlement councils have received in the last ten years. The Comprehensive Spending Review foreshadowed a rise in the central grant to almost 26 billion pounds in 2010-11 – a real terms increase of one per cent a year.

The Chancellor said the increase should mean that local authorities could keep council tax rises substantially below 5 per cent but the Local Government Association Chairman, Sir Simon Milton, said the settlement left a black hole in funding.

“Councils will continue to work hard for the people they serve but they face tough choices. The Chancellor’s announcement will mean above-inflation rises in bills for council taxpayers and businesses, and there remains a black hole in funding for the care of the elderly,” Sir Simon said.

The Review included a new 150 million pound fund to support reforms providing better value for money and the Government said it would lift ring-fencing restrictions on 5 billion pounds of grants to councils, allowing them to spend money on local priorities rather than specific schemes imposed by Whitehall. The Communities and Local Government Secretary Hazel Blears said, “This is a positive settlement for local authorities with major new freedoms that put local communities in the driving seat.”

The announcement could also mean local authorities being given the power to set a business rate supplement for investment and local economic development, which in some cases would see local businesses being given the right to vote on spending plans. In response to that idea, the deputy director general of the CBI, John Cridland, said, “The government has recognised that business is not prepared to give local government carte blanche to tax firms rather than voters. But giving business a vote must be a non-negotiable part of the package on all major projects.”