COUNCIL tax rates have been finalised for the Faithful City after a bitter dispute into what households should pay.

The city council has confirmed a 2.5 per cent increase after a two-hour debate at the Guildhall over the merits of a below-inflation rise.

The deputy leader of the Labour group, Coun Paul Denham, lambasted the authority for not raising more cash by pegging it at a higher level.

He said: "The truth is every year we collect less council tax, in real terms, than the year before.

"Money buys less, because of inflation. The Retail Price Index currently stands at 4.2 per cent, yet we are proposing to collect only 2.5 per cent (the council tax increase).

"This amounts to only a few pence per week saved by each taxpayer, but adds up to a very big reduction in income for this council."

The vast majority of the council tax bill - 70 per cent - is taken by the county council, 10 per cent goes to the city council and the remainder goes to the fire authority and police.

Labour councillors argued the city council should have increased its portion of the bill by the maximum five per cent, to avoid losing money in real terms.

The county council has already plumped for a five per cent council tax rise.City council bosses rejected the criticism and said they were proud to be keeping council tax increases low.

Coun Stephen Hodgson, a Tory, said: "Increasing council tax does not solve problems just like that, and running an authority like this, we have to have prudent financial considerations. I'm proud of the fact we are increasing it by only 2.5 per cent."

Coun Simon Geraghty, leader of the city council, said: "On council tax, I have a fundamental belief individuals can spend their money better than the state can, and we should be taking as little as we can while keeping that extra pound in the public's pocket for them to spend."

Meanwhile, Wychavon District Council approved a 2.5 per cent on the same night.