The spending cap means that councils cannot increase expenditure above a centrally dictated level, even by putting up the council tax. The policy was designed to rein in profligate Labour local authorities, but it now haunts the Conservatives.
This year's revolt over education spending, led by thousands of school governors and supported by the Daily Mail, showed how unpopular these controls now are among the Government's natural supporters. The collapse of the Tory vote in the May local elections has been blamed at least partly on capping.
Capping, argue ousted Conservative councillors, removed the biggest gun from their armoury. They wanted to say: "Vote for us and we'll give you lower bills than Labour." But this slogan counts for little because bills have gradually converged under central controls, regardless of a council's political complexion. As Christopher Gill, a Tory MP, complained during a recent Parliamentary debate: "Voters can vote for socialist councillors ... with impunity, knowing that the consequences of their actions will not result in dramatically increased council tax bills."
There are also tactical reasons for removing the cap. The Conservatives now control only five major spending authorities: Buckinghamshire and four London boroughs. If the Government were to abolish the cap - and engineer a generous central government grant settlement for London - the outcome could be disproportionately beneficial for the Tories at election time.
But this is all low politics. There are more principled reasons why the cap should disappear. Its introduction in 1985-86 ended a right of local authorities, dating back to the 1601 Poor Law, to set rates as they saw fit. The move was anti-democratic, a mark of heavy-handed centralised government which has resulted in local authorities deriving less than one-fifth of their spending from local taxation and the rest from central government grants.
Supporters of the cap argued in the Eighties that it was needed to protect ratepayers from spendthrift councillors and make up for local unaccountability. But even when the poll tax was introduced - making every voter liable to funding a council's excesses - the cap remained in place.
Now we have council tax, which has far more payers than the old rates. It should therefore be more easily subject to local electoral control. Greater flexibility would also allow voters to put their money where their mouths are: they could, for example, spend more on education.
Michael Heseltine now chairs the cabinet committee on local government. He opposed capping when he was Environment Secretary in the early Eighties and has been an advocate of extending local democracy. He should take this principle as his guide and urge the abolition of capping.
By the same token, he should support moves to allow the spending of receipts from the sale of council houses. But he should resist pressure to make that subject to close central control. As we report today, many Conservatives want to see some of this treasure trove spent, but only on projects approved by the Environment Secretary and matched with private sector funds. There is no reason why local authorities themselves should not invite bids for some of these funds and determine who gets them. Mr Heseltine should be true to his beliefs and let people decide how they wish to spend their own money.