By Nick Golding
Sir Michael Lyons has hinted that he may not call for councils to be less reliant on Whitehall for cash when his Inquiry makes recommendations in December.
He said: 'My strongest conclusion so far is that the most important issue for local government isn't the balance of funding - it's the need for flexibility in what you do with the money available.'
Sir Michael also warned that those who wanted to see the business rate localised should remember governments were influenced by lobbying from captains of industry, who believe giving councils an ability to increase taxation could restrict profits.
However, more positively for local government, Sir Michael signalled his determination to convince ministers of the case for devolution by linking council empowerment with the government's attempts to give the public greater choice over who provides public services.
'There's been a lot of government rhetoric about choice but that's usually confined to what we as individuals choose. There are choices we need to make collectively, community by community,' he said.
Sir Michael's comments have disappointed those who hoped his final report would give local government more control over its financial destiny.
The Labour group leader on the LGA, Sir Jeremy Beecham, said: 'Where I would differ from Michael is on the balance of funding issue. [Changing the balance] is fairly fundamental - it's a bit of a litmus test on how you can make local government more accountable and more transparent.'
However, Sir Jeremy said he believed the communities and local government secretary, Ruth Kelly, was keener to shift the balance of funding towards councils than Sir Michael.
Tony Travers, director of the Greater London Group at the London School of Economics, warned the turmoil
surrounding the expected hand-over of power from Tony Blair to Gordon Brown could limit ministers' ability to endorse any radical conclusions in Sir Michael's final report.