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Last Updated: Wednesday, 21 March 2007, 13:55 GMT
Council tax report urges reform
Council tax form
The review says some taxpayers should get an automatic rebate
People who live in the most valuable houses in England should pay more council tax, a review of local government funding has recommended.

Sir Michael Lyons' report calls for a new top rate council tax band, along with a new bottom rate to cut bills for those in the cheapest properties.

The savings limit for pensioners should be higher and council tax benefit be paid as an automatic rebate, it adds.

Sir Michael said: "Council tax is not 'broken' but is seen as unfair."

Local tourist tax

In the short term, he says the burden on pensioners should be eased by raising their savings limit from 16,000 to 50,000.

Automatic payments of council tax benefit would prevent the situation which currently sees around 1.8 billion unclaimed each year, he said - while calling it a rebate rather than benefit would lead to more people claiming it.

In addition, the report says councils should be able to charge householders for how much rubbish they throw away.

In the future ministers should consider ear-marking a fixed proportion of income tax to local authorities, Sir Michael said.

Automatic rebate for those entitled to council tax benefit
Raise savings limit for pensioners to 50,000
New powers for councils to charge for domestic waste and levy a supplementary business rate in consultation with business
End capping of local authorities
Improve transparency of tax system
Provide incentives for local authorities to promote economic growth

He said they should also consider giving councils the power to levy a local tourist tax.

Sir Michael added that future governments could consider introducing local income tax or "re-localisation" of the business rate.

However, he said these were issues for the longer term and such reforms would need "greater public support and understanding than currently exists".

Public sympathy for the idea of a local income tax may not be sustained once voters realise how much it will cost them, he added.

'Profligate councils'

Local Government Minister Phil Woolas welcomed the report and said the government would consider its proposals for council tax benefit and local supplementary business rates.

He added: "Sir Michael has said that there is no magic bullet or simple solution to local government funding. We agree."

However, Mr Woolas reaffirmed the government's commitment not to revalue council tax during this parliament, and said it would not be introducing a tourist tax or giving up its right to cap the spending of local authorities.

Shadow local government secretary Caroline Spelman said the report was a "tax bombshell" for families.

Revalue council tax
New bands for most expensive and cheapest properties
Consider reserving a fixed proportion of income tax for local government
Give councils power to levy "tourist tax"
Improve incentives within the grant system

She said: "Nice neighbourhoods and the rising value of homes will all mean higher council tax bills."

Liberal Democrat local government spokesman Andrew Stunell called the review "disappointing".

He added: "Three years' work has produced timid recommendations that nibble at the edges of the Tory council tax, rather than attacking the unfairness at the heart of it."

Blair Gibbs from the TaxPayers' Alliance said the review was a "gives the green light to profligate councils to spend and waste even more of our money".

No council tax system can ever be fair to everyone
Adam, Sutton Coldfield

VisitBritain said it opposed the tourist tax proposal.

A spokesman said: "Accumulative taxes on tourism already make Britain the second-highest taxed country in the world for tourism."

Chancellor Gordon Brown and Deputy Prime Minister John Prescott commissioned the report in 2004.

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