COUNCILS in York and North Yorkshire could be given new powers to charge a local income tax, under radical plans being considered by the Government.

The Office of the Deputy Prime Minister (ODPM) is looking at alternatives to local authorities raising cash through the council tax.

The leader of City of York Council, Coun Steve Galloway, said he would support a locally-levied income tax.

He said: "The Liberal Democrats have supported funding local government through a local income tax rather than council tax. We believe that funding using local income tax reflects people's ability to pay and would make councils more accountable.

"Using local income tax the whole, or the vast majority of local services, could be funded from local people."

Other options include the introduction of congestion charges and other "green" taxes.

Ministers are unhappy at council tax, which is based on property prices, rather than on householders' earnings. Under the current formula, pensioners who live in big houses can be clobbered by big bills which they cannot afford to pay.

Council tax also only raises about 25 per cent of the cash town hall bosses need to run local services, with the rest coming from a government grant.

This means that councils have to raise council tax by a huge percentage if they want to raise extra cash.

A review, being chaired by the Local Government Minister Nick Raynsford, is looking at a local income tax as a solution to these problems.

The Government grant received by councils would be slashed to about 35 per cent of their total budget.

Councils would then levy their own income tax - on top of the cash taken from wage packets by the Treasury - based on people's earnings.

Ministers believe this would increase the accountability of local councillors, who would have a greater say over how much people pay.

They also think this could boost turnout in local elections, as interest in local government would be increased.

The ODPM stressed a decision was a long way off, with nothing expected ahead of Labour's manifesto for the next General Election. But Tory councils spokesman David Davis said: "You would think the Government would have learned its lesson that trying to palm local authorities with another stealth tax is something the public will see through and reject."

Updated: 11:28 Monday, August 11, 2003