The chancellor has promised extra funding for local authorities in a bid to keep down council tax rises ahead of the general election.

Gordon Brown told MPs on Thursday that an extra £1 billion was being made available to councils in England.

Many believe this is an attempt to minimise the electoral impact of council tax increases as voters go to the polls next May.

A review of local government finance is due to report next year, but the chancellor said he could announce some measures immediately.

English council tax rises this year "will be substantially below" those seen last year, he pledged.

"Local authorities who successfully promote small business creation should be rewarded for doing so," Brown said.

"And the deputy prime minister and I propose that any additional business rate income be shared with local authorities.

"Although I will consult further before the Budget, we expect local authorities to be eligible for an additional £150 million in 2005, £300 million in 2006, rising to £450 million a year."

Rises

Extra cash, spending re-allocated to local councils from central government and a reduction in ring fencing will total an additional £1 billion in spending for town halls.

The total available to English local authorities will be £3.6 billion more next year than in 2004, taking the total to more than £60 billion in government grants.

Local government minister Nick Raynsford said later that it was the third successive year in which every local council has received an above inflation grant increase.

"This is a very good settlement for local government," he said.

"We have now delivered above inflation grant increases to local authorities for the eighth successive year.

"This is enough money for local authorities to continue to provide improved services to communities"

And councils were warned that ministers "are prepared to take even tougher action next year" if council tax rises are again deemed excessive.

"High council tax increases are a thing of the past. We will not tolerate excessive council tax increases either next year or in years to come," warned Raynsford.