Plan to give car tax cash to councils

Revenue from car taxes could be given directly to councils as part of a government shake-up of local authority funding.

Under the plans, the Treasury would continue to set the rate of vehicle excise duty but the money, ?3.5 billion a year, would go to councils to spend. The idea for a "localised" car duty is one of the proposals for council tax reform to be published next month. The review, chaired by local government minister Nick Raynsford, is looking at ways of giving councils more control over their budgets.

At the moment local authorities get 80 per cent of their money from Whitehall, raising the rest from local taxes. Ministers believe givingcouncils more autonomy would encourage local democracy and could improve delivery of services.

The draft review is expected to recommend sticking with the property-based council tax but with a move to regional banding to reflect house price differences.

Ministers are understood to have ruled out a local income tax, as well as plans for a tourist tax and a local sales tax.