Amid growing anger at record increases in bills, the Liberal Democrats have voted to scrap council tax.

The party's local government spokesman Ed Davey told the Brighton conference that the tax is working against the poor and the elderly.

He said council tax, which has risen by 70 per cent since Labour came to power, is unfair and should be replaced with local income tax.

"Council tax is not at the limit of acceptability, it's passed it," he said.

"It is the most unfair tax in Britain today. How can it be right that the poorest pensioners pay six times more of their income in council tax than the richest non-pensioners?"

The announcement comes as ministers revealed they may force councils to hold referendums before they can increase the charge.

Local government minister Nick Raynsford denied that the government had already agreed the policy - describing the plan as "an option for the future".

It came after he admitted that the level of council tax charges has reached "the limit of acceptability".

Raynsford indicated that one solution was for councils to concentrate on raising any extra revenue from local businesses.

The Treasury suggested that councils could raise £1 billion over three years if they are allowed to retain a share of their business rates.

"We have given generous grant increases to all local authorities," Raynsford insisted on Monday.

"This year was the first time ever that every local authority in England got an above inflation grant increase so we are expecting authorities to budget prudently and to come in with reasonable tax increases.

"Many did, but obviously, unfortunately, a significant number did not. It is particularly significant that it was Conservative councils that came in with far and away the largest increases averaging 16 per cent."

Asked about the possibility of local referendums on the issue, he said: "It may be an option in the future, but it is not a specific option at the moment.

"What I am concerned to do is send a message to all local authorities - the government will continue to provide generous increases in grant to fund local services. We cannot fund everything."