TOWN halls should be free to push through any council tax increase, MPs say – and be judged by voters on “election day”.

The current system, requiring a referendum to be won on any proposed hike of two per cent or more, should be scrapped, a Commons committee has concluded.

And areas with ‘combined authorities’ – which include Durham – should be allowed to introduce higher charges for the most expensive homes.

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The recommendations, by MPs of all parties, would represent the most dramatic new freedoms over local taxes for almost 30 years, since ‘capping’ was first introduced.

And they would prevent a repeat of this year’s clash between many of the region’s councils and the Government over their planned increases.

Mr Pickles tried to lower the threshold for a referendum to a rise of just 1.5 per cent, but was blocked by the Liberal Democrats.

The move was an attempt to block the likes of Durham and North Yorkshire, which had both proposed hikes of 1.99 per cent to avoid further, damaging spending cuts.

Now the Commons communities select committee has said the Government must “learn to have confidence in local authorities”, if promises of devolution are to become a reality.

Its report concludes: “All local authorities should be trusted with responsibility for setting the council tax rate in their areas.

“There is no hard and fast rule that they will automatically use this flexibility to increase their council tax rates, but, if they do, they should be free to do so and then test local people’s appetite for it - as they do for a range of decisions - on local election polling day.”

The report also criticises the fact that council tax rates are based on 1991 property valuations, warning the system will “collapse”, without regular revaluations.

And it attacks the unfairness of people in the highest-banded properties paying “no more than three times the tax of those in the lowest”.

The solution is to give authorities – starting with combined authorities – “the power to introduce new council tax bands at the top end of the scale and to split existing ones”.

The report concludes: “Doing so might go some way to increasing fairness in the distribution of the tax burden locally.”

Gradually, all local authorities should be given power over business rates, stamp duty, and other smaller taxes and charges, the committee says.

Clive Betts, its Labour chairman, said: "If the citizens of New York, Frankfurt and Tokyo can be trusted with tax-raising powers, why not the people of London, Greater Manchester or the North East?

"Local areas know best how to stimulate their economies. With a wider range of revenue streams at their disposal, they would be able to invest in infrastructure and projects that mattered locally - without having to rely on or wait for handouts from central government.”