HOUSEHOLDERS in the North-East will pay an average of 4.2 per cent more council tax, making the average bill £928.

The rise, an average across all property bands, is based on rates set by all the region's councils and is the lowest in the country.

Band D properties in the region face an average 3.8 per cent rise in their council tax, taking it to £1,329 a year.

Nationally, council tax rates will increase by 4.5 per cent next month, more than twice the rate of inflation.

Yesterday, it emerged that York City Council, along with Medway Borough Council, in Kent, would have its budget capped for "excessive" spending.

Local Government Minister Phil Woolas warned town halls not to set council tax rises above five per cent and keep spending rises to no more than six per cent.

All other councils in the region managed to squeeze under the bar, but York fell foul of the authorities, having imposed a 5.5 per cent rise.

It now has 21 days to challenge a cap before a Government limit is imposed.

It could be forced to re-set its budget and send out revised bills to thousands of homes.

Council leader Steve Galloway called the proposed sanction perverse, while York City MP Hugh Bayley said he would seek talks with Mr Woolas.

Peter Steed, the council's head of finance, said: "It is unfortunate that, due to the rigid criteria the Government uses, a council that has the lowest expenditure per head of population is likely to be penalised, especially when it has been independently assessed as providing good-quality services.

"This is despite the Government's failure to address the issues identified in the Fair Grant for York Campaign and the council having to contribute over £1.25m to support other councils whose funding has been reduced.

"The cost of re-billing will be approximately £120,000 -that is a cost of £1.50 per council taxpayer, or 3p per week.

"To meet the Government's requirements, we would need to reduce the budget by approximately £280,000 - a reduction of 7p per week."

Melanie Laws, director of the Association of North-East Councils, praised the efforts of councils to keep council tax down.

She said the region had received the lowest financial settlement from the Government of any in the country.

She said a 2.7 per cent rise in the settlement - compared to an average three per cent - equated, in real terms, to a £4m loss since councils faced extra responsibilities.

Ms Laws said: "Local authorities across the North-East have had to make very tough decisions.

"The fact that the region has collectively imposed the lowest rise of any region is testament to councils' ability to act diligently and efficiently on behalf of their citizens."

Durham County Council leader Councillor Ken Manton said: "Unfortunately, the services we provide each face individual pressures, whether it is costs rising above the rate of inflation, increased statutory requirements, higher public demand or increased public expectation."