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By Matthew George, parliamentary correspondent ...
By Matthew George, parliamentary correspondent

Real change to the balance of funding has moved a step closer after the Treasury said it would have no objection to a huge increase in the amount of revenue raised by local government.

Andrew Lewis, head of the Treasury tax policy team, told MPs in the ODPM select committee that doubling the proportion of the nation's gross domestic product raised by councils from their existing level of 4.2% to around 10% would not cause 'insuperable problems'.

But he warned such a move would put pressure on the process of equalisation and have profound implications for the way central and local government interact.

Officials from the Treasury and ODPM remained tight-lipped about the direction the ODPM's balance of funding review might take.

Lindsay Bell, director of local government finance at the ODPM, stressed nothing had yet been ruled out, and keeping the existing system was a 'viable option'.

Dan Corry, director of the New Local Government Network, told the committee councils need more choice and a wider spread of taxes, for example a tourist or sales tax.

'Councils may not want to use them but they need as diverse a range of taxes as central government has,' said Mr Corry.

Peter Kenway, director of the New Policy Institute, said pegging the increase in business rates to the increase in council tax since 1997-98 would have reduced the increase in council tax by a third since that date.

'I'm not sure it would have done away with all political problems, but it would certainly have taken pressure off council tax,' he said.

Tony Travers, director of the Greater London Group at the London School of Economics, said a consequence of genuine local discretion was that the worst could get worse and the best could get better.

'I think that is a price worth paying for a more autonomous local system,' he said.

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