This is despite the fact that the Chancellor of the Exchequer, Gordon Brown, has indicated that council tax may rise by 8 % across the country.

Tony Flynn, chairman of the Association of North East Councils, said central government was refusing to acknowledge that more money is needed because of high levels of deprivation.

Some households in the region will have to pay more than £85 extra next year.

Highways funding

Local council leaders feel the government has failed to narrow the North-South divide in its spending allocation.

The local government settlement was worth £2m more to the region instead of the £132m local authorities say they need.

Mr Flynn said: "It is going to be difficult to explain to the public why council tax is going to be significantly ahead of inflation, while there is a reduction in services at lots of authorities in the North East."

It is feared that highways and social services in the region could be affected.

A new formula of funding was introduced early in December by Local Government Minister Nick Raynsford.

Mr Raynsford has said no English council had received a cut in grant in cash terms compared to last year's figures.