INFLATION-bREAKING increases in council tax this year were the fault of the Government rather than local authorities, according to a report.

The Audit Commission study said the huge rises followed "unusual" spending demands heaped on councils by Whitehall.

They included additional National Insurance and pension payments and money for schools, leaving councils with the choice of cutting services or increasing tax bills.

The report blows a hole in the Government's attempts to blame local authorities for council tax rises that averaged nearly 13 per cent nationwide.

The average bill in the North-East rose by 8.9 per cent, with Durham (9.17 per cent) and North Yorkshire (11.5 per cent) imposing higher increases.

Since Labour came to power, people living in a Band D home in the region have seen their bills rise from £723 in 1997 to £1,161 this year.

Last night, Councillor Bob Gibson, chairman of the Association of North-East councils and leader of Stockton Borough Council, said: "The Audit Commission has got it exactly right.

"There are hidden costs being passed on to local authorities by Government and the consequence of that is large council tax rises."

Coun Gibson added: "Most councils are struggling. We face very real pressures and cannot run services and meet the extra demands of an elderly population, as well as meet these extra contributions, without putting up council tax."

In March, Nick Raynsford, the Local Government Minister, said the money going to councils was a generous increase, insisting all grants were above inflation for the first time.

However, the commission's report appeared to support complaints over the level of settlements while also dismissing claims of profligate spending by local councils.

It said there was a clear association between the size of the grant a council received and its increase in council tax.

"The greater the increase in grant, the less was the increase in council tax," the report said.

Responding to the report, Mr Raynsford said it recognised that large council tax increases were caused by contradictory factors, some of which were the responsibility of local government.

But David Curry, the Conservative's local government spokesman, described the report as a "damning and devastating indictment of Labour's approach to councils and council tax".