NORTH-EAST councils will receive the smallest increase in Government grants next year as experts fear a rise in council tax.

Nationally, council tax rises should be below five per cent for each of the next two years after the announcement of additional central Government funding for local authorities totalling about £1.1bn, MPs were told yesterday.

But in the region, a rise of only 2.7 per cent in grants was awarded for 2006-2007, and only 3.5 per cent in 2007-2008.

Local Government Minister Phil Woolas said there was no excuse for excessive hikes, and warned councils the Government would cap any unduly large rises.

But Councillor Peter Allen, executive member for resources at Newcastle City Council, said the budget was disappointing and would put the council under pressure to maintain quality services with low council tax.

And Sir Sandy Bruce-Lockhart, chairman of the Local Government Association, said the deal "leaves many councils having to face tough choices between council tax increases and cutting services".

In his pre-budget report to the House of Commons yesterday, Chancellor of the Exchequer Gordon Brown announced additional grants for councils of £305m next year and £508m in 2007 in a bid to keep council tax rises down.

The North-East received an extra £42m for next year and £55m for 2007.

But there was good news for some local councils, including Wear Valley District Council, which received an eight per cent increase of £0.5m.

Leader of the council, Neil Stonehouse, said that he was pleasantly surprised with the size of the increase.

He said: "We are still trying to establish things, but the figures look good.

"We did expect some increase in grants this year.

"But perhaps a lot of it will be for concessionary travel, which the Government did promise us."