Inflation-busting council tax rises will push average household bills above £3,000 for the first time, The Times can reveal.

Council tax, water and energy bills will rise to £2,510 this year, up from just over £2,000 two years ago. Once average phone bills are added, the total rises to £3,169.

A survey by The Times and the Chartered Institute of Public Finance and Accountancy (CIPFA) shows that council tax will rise by 3.9 per cent from April, with the average Band D bill increasing by £52 to £1,374.

The rise, the eleventh in succession that is above inflation, means that council tax bills have doubled since Labour came to power. In 1997 the average Band D tax was £688.94

The survey of more than 250 councils reveals that all but 19 have managed to keep increases below 5 per cent. Councils that break this level risk being capped — a penalty in which the Government forces councils to re-bill every resident or cut spending the next year.

Some councils that have kept tax below 5 per cent have done so at the expense of services for the elderly and the mentally disabled. In other areas public facilities have had to close.

John Healey, the Local Government Minister, told The Times that efficiency savings and the threat of capping had enabled most authorities to keep increases down. He said that any authority that proposed an increase of more than 5 per cent would risk being capped, including the 12 police authorities who have already defied this limit.

Stephen Freer, the CIPFA chief executive, said that some authorities would be forced to cut services but it was too early to tell where this would fall. Many councils had already dug into their reserves. “This will make it much harder for them to contain rises in the next two years,” he said.

The 3.9 per cent rise is much higher than the consumer price index, the Government’s preferred measure of inflation, which is at 2.2 per cent. It is slightly less than the RPI, the popular retail index measure, which stood at 4.1 per cent in January. The rising cost of utilities and council tax means that in real terms the average household has nearly £250 less in disposable income than in 1997.

Figures calculated for The Times by the research consultancy Capital Economics show that council tax and energy and water bills account for 7.8 per cent of average earnings, up from 6.9 per cent in 1997.

Hector Sants, chief executive of the Financial Services Authority, the City regulator, said that the era of cheap credit had come to an end. “People do need to bear in mind that if we do see — as is generally forecast — a deterioration in the real economy, consumers will find paying their financial obligations more difficult than they were in the past,” he said.

Mortgage lenders have tightened lending criteria, leaving borrowers with little equity in their homes facing big increases in repayments when their current mortgage deals end.

This week Bank of Scotland stopped lending to those who did not have at least 5 per cent equity in their home or a 5 per cent deposit.

It emerged that Nationwide, Britain’s biggest building society, will stop offering its best mortgage rates to buyers without a 25 per cent deposit. Abbey, HSBC and Cheltenham & Gloucester operate the same policy.

Consumers with personal loans and credit cards are also finding it more difficult to keep their repayments down. About 3 per cent of credit cards offer 0 per cent introductory deals on purchases, down from 8 per cent in May 2006, according to Moneyfacts.co.uk, the financial information website.

Borrowers hoping for a cut in interest rates next month are likely to be disappointed. Sir John Gieve, Deputy Governor of the Bank of England, said that there was limited scope to lower borrowing costs. “Of course there is a role for monetary policy in smoothing the cycle but it has to address the whole economy and not just the financial sector,” he said.

Most economists forecast that rates will be cut again in April or May.

Taxing times

£1,374.26 Band D council tax bill for 2008-09
£659 Annual household bill for landline and mobile phones
7.8% proportion of annual earnings spent on utility and council tax bills, up from 6.9 per cent in 1997
3.9% annual increase in Band D council tax
99.5% increase in council tax since 1997

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