A ferocious battle over capping which has been waged behind the scenes in Whitehall for several months will come to a head this afternoon at the first meeting of the ministerial committee on local government to be chaired by the Deputy Prime Minister, Michael Heseltine.
Some ministers are also applying pressure for the release for urban regeneration of some of the pounds 6bn capital receipts held by local authorities. The move would be the first relaxation of the strict controls on the use of receipts since Norman Lamont temporarily lifted them in his first Budget in 1991.
The outcome of the discussions is seen as a critical test of a wider political argument increasingly gaining currency within the Conservative Party that since 1979 power has shifted too far to central government and quangos from local authorities and that the trend now needs to be reversed.
John Gummer, Secretary of State for the Environment, with the support of prominent Cabinet colleagues and the local government minister, David Curry, is making a determined effort to overcome Treasury resistance to a suspension of capping powers to give more tax and spending autonomy to local councils.
Kenneth Clarke, the Chancellor, and his new Chief Secretary, William Waldegrave, are mounting an equally determined campaign to prevent any relaxation of capping, which they argue could lead to the Government's taking the blame for council tax rises agreed by free-spending Labour councils.
The Treasury is also arguing that any rise in council tax could adversely affect the Retail Price Index, adding indirectly to public spending by increasing the uprating of index-linked benefits. But Mr Gummer, thought to have the support of Brian Ma-whinney, party chairman, Gillian Shephard, Secretary of State for Education and Employment, and Stephen Dorrell, Secretary of State for Health, has long been against capping.
He came under attack from some Conservative backbenchers on 15 June in the debate on capping orders on 10 local authorities and has been lobbied by former Tory councillors who lost their seats in May because of the Government's unpopularity.
In terms likely to be reflected in a spate of resolutions to the Tory conference in October, former councillors and other senior party activists argue that capping saves Labour councils from themselves and removes a crucial reason for voting Tory in local elections.
Supporters of an end to capping are hopeful that Mr Heseltine, who was against capping as Secretary of State for Environment in the early 1980s and as a backbencher, will back them against the Treasury. But the issue is unlikely to be resolved until the autumn public spending statement is agreed and is likely to depend on a final decision by the Prime Minister.
The Chancellor is also being pressed by some ministers to reverse the decision taken by Mr Lamont in 1992 to include local authority spending, funded by council tax, in the control totals used for public spending purposes.
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