Local councils should be allowed to raise money in local taxes but these should not replace the council tax, MPs have said.

A report said the ability to raise local taxes and the discretion to deliver services was central to local democracy.

The Office of the Deputy Prime Minister's Committee carried out an inquiry into local government revenue and discussed a 'basket of taxes' including tourist or bed taxes and congestion charging.

But councillors in the West Country have already rejected such ideas because the tourist industry is so fragile.

The committee was firm on the principle that the council tax should not be abolished, despite criticising the current balance of funding, which involves councils receiving 75 per cent of their revenue from central government and 25 per cent from council tax.

This means councils have to raise council tax by four per cent to match a budget increase of one per cent.

In a side-swipe at pensioners who have complained at a series of inflation-busting council tax increases the committee argued that pensioners were throwing away money and pointed to £1.2 billion of unpaid council tax benefit every year.

Committee chairman Andrew Bennett MP said: "It is crazy. Lots of pensioners are upset about council tax increases, but many of them are throwing money away.”

The committee called for a new drive to ensure people took up council tax benefits to which they were entitled.