Mark Lambirth, director of local government finance policy at the Department of Transport, Local Government and the Regions, said there is a need for specific grants in line with the introduction of new initiatives. But the government will acknowledge spiralling ring-fencing when it finalises details of the finance white paper due later this year, he said.
'While there is a need for specific grants for new initiatives there will be some consideration that this type of funding has been steadily increasing,' he told a Local Government Association finance conference.
The percentage of specific grants from central government has increased from 2% to 10% in the past five years.
Mr Lambirth warned councils the government is concerned about increases in council tax.
He said: 'Councils need to consider how long council tax increases are going to be viable against low inflation.'
The threat of capping is diminished, but LGA director of finance Neil Kinghan was keen to stress that local government secretary of state Stephen Byers has only ruled out 'in-year' capping.
Mr Kinghan added: 'It is interesting to note he has said he is not pleased by high council tax increases at a number of councils and is expected to write to some authorities over the next two weeks. This could be a prelude to using reserve capping powers.'
Gordon Keymer, leader of the LGA's Conservative group, said: 'I'm horrified about the prospect of the government writing to councils so soon into the financial year.' There will be no overall revaluation of council tax in the white paper, but discounts for second homes are likely to be reviewed.
Mr Byers has said he will reform council tax bills to show how much different authorities have increased their demands.