Speaking in a Commons debate of local government services, Liberal Democrat environment spokesman David Rendel called for the reform of council financing in tandem with the abolition of capping.
Mr Rendel said: 'As the Conservatives have been driven from town halls throughout the country, the government has wreaked its revenge.'
He claimed a 4.5% increase in the standard spending assessment for education would force authorities to increase council tax by 8% to 9% and 'cut other services to the bone'.
Mr Curry said local income tax would mean differential rates of tax, representing a 'real threat' to poorer inner cities. He also said such a system would be difficult to match to the benefits system.
Mr Rendel's motion calling for the reform of local government finance 'so that (councils) can realistically meet need within the communities they serve' was defeated, amid a great many Labour abstentions.