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Last Updated: Monday, 27 March 2006, 09:31 GMT 10:31 UK
Q&A: The Lyons Inquiry
Sir Michael Lyons is looking at how to reform council tax and the role of local government. Here's a guide to his inquiry.

What is the inquiry about?

Sir Michael was asked by Chancellor Gordon Brown and Deputy Prime Minister John Prescott in 2004 to look at the way local councils are funded could be changed. This included reforming the council tax. The inquiry's remit was extended last year to look at the role of local councils.

Who is Sir Michael Lyons?

He was chief executive of Birmingham City Council from 1994 to 2001 and previously held similar posts in Nottinghamshire and Wolverhampton. He is professor of public policy at Birmingham University. He is also acting chairman of the Audit Commission and chairman of the English Cities Fund.

When does he report?

Sir Michael's findings are due in December. He has already published an interim report explaining some of the options. He says he is keen to hear from the public about what powers they think councils should have and what they think would be a fair way of raising money for local services. He says he is currently "open minded" and has so far reached no conclusions.

How could council tax be reformed?

Among the options Sir Michael is considering is valuing homes individually to decide their council tax bills, rather than putting homes in bands of similar value. Adding extra bands to the current system is another alternative. He is also looking at whether there could be more discounts and exemptions and at how council tax benefit could be reformed as a way of making the tax fairer.

Do the funding questions go further than council tax?

Yes. Sir Michael has promised to look at the idea of a local income tax but also points out that only a small share of the money councils spend is raised locally. He is looking at whether the balance between money raised by Whitehall and cash collected locally should change.

What about business rates?

Business rates are set in Whitehall and go to a central "pot" to be redistributed around the country. There are calls for councils to be able to set business rates locally and use the money directly. Business rates have also been capped at the level of inflation in recent years - critics say this has put more pressure for council tax to rise as a way of generating extra cash.

Could there be extra charges?

The inquiry is exploring whether there could be new user charges for some services. Other possibilities include an accommodation tax to make tourists pay towards services in the areas they visit on holiday; a local sales tax; congestion charges; and other taxes on litter, waste and environmental taxes.

What about the role of councils?

Councils have an array of functions, although there are questions about whether national targets limit the freedom they have to decide how local services are run. Sir Michael is looking at whether more power should be devolved or whether ministers in Whitehall should intervene more in councils.

Could town halls get new powers?

Sir Michael believes councils need to have a "place shaping" role - able to get together different parts of the community to make sure the area is prosperous. He is looking at whether councils have the right powers to perform this task. The Institute for Public Policy Research recently said the UK's biggest cities should have elected mayors with new tax-raising and spending powers. This is the kind of issue the inquiry will cover.

What about differences between different parts of the country?

One key focus of Sir Michael's work is which services should be handled nationally, with similar standards across the country - perhaps things like education and healthcare. But he is asking whether people are prepared to tolerate differences between area to area, with decisions taken locally about how services are delivered and what residents are prepared to pay for them.

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