That council tax is likely to rise by more than inflation again next year will be received with resignation by those who pay this unloved levy. The average band D bill (which the typical property falls in) has increased by 84 per cent since 1997. That the projected rise is of the comparatively modest order of 4 per cent owes more to there being an unusually large number of council seats up for election in May than any other development. Councils and ministers have every incentive to be relatively benign in the coming year before returning to form in the 2008 settlement. And with Gordon Brown showing, perhaps understandably, no enthusiasm for reforming local government finance, the chances are that the council tax will remain for some time to come.

That being the case, councils should seek to control their spending as carefully as possible. The past two years have witnessed a more extensive drive to control bureaucratic costs. Yet as we report today, the rapid increase in the money spent on private sector contracts is pushing bills higher. The overall cost here has increased from £10 billion to £18 billion in only five years. Some of this is because councils have chosen to outsource more activities to private companies and this will often be a wise decision. In other well-established areas such as waste disposal (and management) and road maintenance, however, charges are surging at 7 per cent a year, yet councils seem to have few alternative suppliers.

A review headed by Stephen Timms, the Chief Secretary to the Treasury, Lord Bruce-Lockhart, chairman of the Local Government Association and Richard Lambert, Director-General of the CBI will soon start work on this matter. Their recommendations will come too late to have an effect on the council tax next year. It is imperative that they have a serious impact by 2008.

Both central government and local authorities need to change the way that they approach private sector provision. Many of the contracts for which bids are invited have become so complicated, particularly on health and safety grounds, and carry with them such a fear of litigation, that only a small number of very large companies are in a position to seek this business. This is rarely the fault of local authorities. The blame lies with Whitehall, and it is Mr Timms’s responsibility to make matters easier for councils by simplifying dramatically the procedural and bureaucratic demands that discourage companies from tendering. In waste disposal, for example, there are big companies that have no interest in working for the public sector but that would stimulate a more competitive market if they were to enter the fray. Ministers must convince them to look again.

Councils could, though, be far more efficient in how they deal with private businesses. By combining with neighbouring authorities when seeking key bids, for example, they could almost certainly reduce their overheads. There are also doubts whether senior council officials have the specific expertise to negotiate all these contracts. Perhaps paradoxically, council leaders should seriously ponder outsourcing their outsourcing. The combination of simpler arrangements for the contracts themselves and a robust approach to bargaining could make for substantial savings.

None of this would make the council tax wildly popular. In truth, there is no scheme for local taxation that ever is. It should mean, nonetheless, that when the anticipated increase in council tax becomes available this time next year, that figure will be a lot lower than it might have been.