High price of Labour failing to grasp nettle

Council tax "under control", said the headline. Labour promised not to allow "excessive" increases and pledged that in the longer-term the party was committed to reforming a regressive system considered too unfair.

The Government would "consider carefully the conclusions of the Lyons Review into local government finance", the manifesto said.

Yet when Sir Michael Lyons returned with his review, Ministers swiftly kicked it into the long grass.

The fact that he concluded council tax was broadly sound and should be retained was seized on by the Government, conveniently ignoring his proposals for incremental reform.

Within minutes of its publication, Local Government Minister Phil Woolas rejected proposals to remove capping – which Sir Michael suggested would make councils more accountable to their voters – or to hold a revaluation to overcome problems incurred by relying on property prices nearly two decades old. The suggestion that local income tax could be considered in the long term was instantaneously dismissed.

Sir Michael's suggestion of adding extra bands at the top and bottom – to make the rich pay more and the poor less – was also overlooked while his call for council tax benefit to be paid automatically rather than having to be claimed was also ignored. Latest figures show that three in 10 of those who are entitled to state support still do not claim it.

In the meantime, the days of double-digit increases may have ended – the Government now caps anyone proposing increases over five per cent – but bills have still soared by above the rate of inflation, leaving home-owners in the region paying about 180 a year more than they did in 2004-05, the year before the last General Election.

"The Government commissioned the Lyons Inquiry to look into the future of local government finance but has failed to act upon its recommendations," said James Hulme of the New Local Government Network, a think tank favoured by Labour.

"Council tax remains both an unfair and unpopular tax and one that none of the political parties have much enthusiasm for reforming.

"While the Government has devolved more services to the local level, they have not in turn given local councils any new significant funding freedoms, meaning that local authorities are reliant on council tax as their sole main source of income other than Government grant."

There is, however, little sign of reform on the agenda. The Department of Communities and Local Government confirms there are "no plans to change the council tax system" and insists Government grants to local authorities have increased above inflation each year. Councils, however, bemoan the extra responsibilities placed on them by Whitehall without sufficient funding to pay for them all.

"Government is acting to keep council tax bills low, we expect next year's rises to be the lowest in 16 years and Ministers won't hesitate to cap excessive increases if necessary," said a spokesman for the Department.

"The Government has set out radical changes to the way local services will be delivered in the future.

"By streamlining Whitehall and cutting red tape, we will free up councils to put their local residents first by focusing their resources on delivering high quality services where they are most needed."

Campaigners want council tax to feature heavily as an election issue, something likely to be guaranteed given the Tory populist pledge to help councils freeze bills for two years.

Yet the Tories offer little sign of major reform either, although they would allow local authorities to keep the tax take from new homes to encourage housebuilding.

Only the Liberal Democrats offer the promise of an overhaul by favouring a local income tax instead, an idea which itself is mired in problems.