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The belief that the government is to change the way local authorities are financed has been thrown into doubt by a senior civil servant.

Lindsay Bell, director of local government finance at the Office of the Deputy Prime Minister, told an all-party committee of MPs that the review of how local government is funded could decide that change is unnecessary.

If this is the case, it would deal a blow to local government leaders who believed they had won the argument with the government for changing the system under which three-quarters of council money comes from central government grant. Councils would like more freedom to raise money locally to help them focus on local priorities.