No reform to council tax yet, says Blair

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Tony Blair has decided to retain the council tax, despite the threat of a pensioners' revolt over this year's bills.

The Prime Minister has privately warned advisers pushing for reform not to clutch at "bright, new shining ideas". That is because when Margaret Thatcher faced a ratepayers' revolt in the 1980s, she came up with the poll tax, which caused riots and helped end her time in office.

Instead of getting rid of the tax, the Government is working on a strategy to make it less unpopular. This will include reducing the costs for householders by making businesses pay more, helping pensioners to avoid paying anything, and coming down hard on overspending councils.

The pensions minister, Chris Pond, will tomorrow, launch a new publicity campaign aimed at more than one million pensioners who are not claiming means-tested council tax benefit of up to £450 a year, unwittingly saving the Government£500m.

They apparently include Elizabeth Winkfield, the 83-year-old who shot to fame by vowing to go to prison rather than pay her full council tax. She gave details of her income to the Daily Mail, which, if correct, would mean that she need not pay council tax. Ironically, she may now be liable for the tax because of the large payment she received for selling her story.

Mr Pond plans to make council tax benefit easier to claim. Last time the system was "simplified", the Government scrapped the 36-page form that pensioners had to fill in, and replaced it with a 24-page form. This time, Mr Pond hopes to devise something simple that will free pensioners from feeling that they are having to apply for a state hand-out rather than a rebate to which they are entitled.

A committee set up to look at council tax reform will on Thursday examine the Liberal Democrats' policy of replacing it with a local income tax. That is almost certain to be ruled out because of the high administrative costs.

The committee will also look at a request from councils that they be given back control over the business tax, which was taken away from them when the poll tax was abolished in 1991.

At that time, 29 per cent of councils' income came from businesses, and 19 per cent from residents, with the rest from central government. Since the introduction of a uniform business tax, the contribution from business is now 22 per cent, while households contribute 26 per cent

John Prescott, the Deputy Prime Minister, has threatened to "cap" councils seeking to impose inflation-busting tax increases, forcing them to make budget cuts instead.