COUNCIL tax in York is set to rise by the maximum 4.5 per cent next year, after the Government announced a grant described by council chiefs as "disappointing".

Local Government Minister Phil Woolas has announced the provisional financial settlement for 2007/08, which sees York's income increase by 3.2 per cent.

Council leader Steve Galloway said that was not enough to cover increasing demands on social services, meaning the council would have to set a tax increase of 4.5 per cent.

This is the maximum increase the authority can set, following the threat to cap the increase last year. Coun Galloway said: "The provisional financial settlement figures have been a disappointment for York with the small 3.2 per cent increase being insufficient to cover the additional costs of inflation and the increasing demands placed upon the council's social services departments.

"Unless the final settlement figure provides a significantly fairer result for the city, then the council tax increase of 4.5 per cent will have to be confirmed by the council."

The new settlement figures will see York receive £38.343 million from the Government, up from £37.151 million in 2006/07 - an increase of £1.192 million.

Coun Galloway provided graphs showing the average spending per head in York was notably lower than the national average for unitary authorities.

He said: "The spend per head in York is only 76 per cent of the average of other councils across the country. York is recognised as being a very prudent local authority.

"Despite this, in York, we have achieved over the last four years, the remarkable feat of improving substantially public service quality indicators. 63 per cent are now amongst the best achieved anywhere in the country."

Last year, council tax in York was increased by 5.49 per cent, but Mr Woolas nominated the authority for capping. The Government said no council should increase tax by more than five per cent, which would have meant York having to repay the 0.49 per cent to householders - equivalent to only 7p a week per tax-payer.

A vehement campaign by local politicians of all parties, business people and The Press eventually led to the capping threat being withdrawn, but the money has had to come out of the coming year's budget instead.