People in rural England are increasingly paying higher council tax than city residents but still receive fewer services for their money, according to a new report.

In 50 rural areas, spending on services was just 90 per cent of the national average while council tax rates were two to three per cent above the average.

Government Response: Office of the Deputy Prime Minister

A spokesman for the ODPM said: "There is no excuse for excessive council tax increases in any area. The government has shown it will act to limit council tax rises.

"This year, every council received an above-inflation grant increase - in all, local government funding has risen by 30 per cent since 1997.

"The grant distribution formula is specifically designed to distribute grant according to relative circumstances, or relative need, both in rural and urban areas."

Party Response: Liberal Democrat

Edward Davey, Liberal Democrat local government spokesman, said: "This report reveals yet another injustice in a council tax system that’s riddled with unfairness.

"The unfairness of council tax can be especially harsh in remote rural areas, where council services are much harder to access and can be more expensive to provide.

"Despite all such evidence that the council tax is the most unfair tax in Britain today, Ministers have ducked the challenge to reform.

"Even if ministers reject calls for a fair tax related to ability to pay, they should at least ensure their latest review of council tax considers this worrying evidence."

Stakeholder Response: Local Government Information Unit

Dennis Reed, LGIU chief executive, said: "It is not only rural areas that suffer the problems caused by the local government finance system. Unfortunately, by announcing another independent inquiry into council funding, ministers have consigned firm decisions on reform to the long grass for at least 18 months.
 
"To relieve the excessive and unsustainable burden presently loaded on council tax bills, local authorities need a broader range of local revenue raising options. These could include sales, green and tourist taxes, and a relocalised business rate.

"If local authorities raised more than half of their income locally, instead of the present quarter, it would curb the tendency for small variations in a council's spending, or in government grant distribution, to cause disproportionate swings in taxpayers' bills.
 
"As well as being made more progressive at the top and bottom, council tax bands need to be varied regionally to reflect diverging property values across the country.

"For example, the council tax band defining the average house price  - currently 'Band D' - was set at between £68,000 and £88,000 for England as a whole in 1991. However, in London the average property price is now over £250,000, but far lower elsewhere.

"Without reform, most households will suffer huge increases if they are just reclassified into the higher bands. A modernised council tax benefit system, recast as a tax rebate, is needed to protect those on fixed or modest incomes whose homes have risen sharply in value.

"The nightmare scenario for most council taxpayers would be if sensible reforms were not in place before the property revaluation that takes effect in 2007.
 
"More immediately, following the chancellor's spending review, unless ministers can again find extra funding to bridge the £1 billion gap that the Local Government Association has identified in town hall finance for 2005/06, there will be further upward pressure on the council tax and the threat of capping imposing further cuts in those local services that ministers do not protect with ring-fenced funding."

Stakeholder Response: Countryside Alliance

Simon Hart, chief executive of the Countryside Alliance, said: "We have long argued that a workable service infrastructure costs more in rural areas than in urban ones.

"Rural communities pay more per person for their services than urban people, and yet receive less. Rural transport has failed to improve, fear of crime is increasing and rural healthcare, such as dental care, has been described by the Countryside Agency as 'in crisis'.