A Conservative amendment which would have linked councils' spending on implementing their new powers to promote the social, economic and environmental well-being of their areas to the product of a£2 increase in council tax on a band D home within the area was defeated by 135 votes to 66 in the lords.
And the government revealed it was considering how councils might charge for services provided under the new well-being power.
Lord Dixon-Smith, who proposed the amendment during the report stage of the Local Government Bill, said local authorities were being given a new general power but were specifically forbidden to raise money to implement action under the power by precepts, borrowing or in any other way.
Liberal Democrat Baroness Hamwee said she agreed with local authorities being allowed to make their own decisions because local taxpayers, as electors, would give their views in due course. Her party would not support the move because the£2 limit was unambitious and she did not want the Bill to apply yet another restriction on local authorities in tax raising and spending.
Labour council leader Lord Smith of Leigh said the amendment would be restrictive in its effect and unfair in its consequences. In his local authority, over 88% of properties were below band D and only 4% above.
For the government, Baroness Farrington said the effect that any spending might have on a council tax increase was a matter for the local authority.
She added: 'There is an important general point. We have said we will look at the ability of councils to charge for the services they provide with the well-being power. That will represent a new form of raising finance. Beyond that we would expect this new power to be implemented within the current finance system. We are not preculding local authorities from being able to spend money and raise their council tax in pursuit of their own local priorities within the reasonable bounds established by other legiuslation'.