In a reply to the critics who slam George Osborne for mishandling the British economy with a £805 million giveaway, the chancellor is likely to cut the tax households pay for local services.

The coalition government, since in power, has been cutting spending and increasing taxes to abolish record budget arrears by the next election in 2015, leaving no additional cash to help in reviving the already struggling economy.

The chancellor says he is trying to manage funds in a way that will help families and industries deal with the rising cost.

"I wanted to help families and pensioners with the daily cost of living," Reuters quoted Osborne saying before the Conservative Party's annual conference in Manchester.

Local governing bodies across the UK have scrapped or reduced the council tax for 2011-12.