The government has earmarked more money to lessen the impact of council tax rises.

The chancellor said an additional £406 million would be available to UK local authorities from April next year with no strings attached.

The money comes in addition to the extra £3.6 billion already set aside for English councils in the next financial year.

Ministers are committed to meeting "the needs and concerns of council tax payers" Gordon Brown said in the wake of record increases this year.

But he warned town halls that the government will "use capping powers if necessary... to ensure next year reasonable levels of council tax" if rates are set too high by local authorities.

The chancellor also said Whitehall spending would be watched closely in next year's comprehensive spending review.

"Modernisation and reform [will be] the condition of future spending settlements," he said.

But he unveiled a bid to cut red tape by promising that departmental service delivery agreements - which tie Treasury money to performance and efficiency - would be abolished.

And he also reassured MPs that there would be no turning back on public services spending increases despite rising borrowing.

"We are able to move forward with the spending plans we have set out," he said in his Commons statement.

"By 2006 £15 billion pounds more a year for education than last year, £59 billion more a year for public services and by 2008 for health alone £41 billon more."