The controversial Barnett formula should be scrapped and replaced by independent body to assess local budget needs, according to a report published on Wednesday.

Under the proposals, contained in the study for the New Local Government Network, a Grants Commission would be established to decide the appropriate distribution of central funding.

"The present arrangements for evaluating the needs of territorial governments are fragile," write the report's authors, Professor Iain McLean and Dr Alistair McMillan of Nuffield College, Oxford.

"The arrangements outside England do not consider needs at all; those inside England consider them, but badly.

"New localism requires robust non-political grants commissions, independent of central government, to determine the needs of the UK's 12 standard regions."

Under further changes recommended by the study, local authorities would be given direct powers to collect congestion charges to use as they saw fit, while the restrictions on their borrowing powers would be lifted.

There would also be changes in taxation - the number of bands at the top of the council tax scale would be increased, and rebates for second or holiday homes would be removed.

A new land value tax would also be created.

"No government can be serious about new localism without looking at the tax bases available to local and regional government," argued McLean and McMillan.

The report comes as the Treasury conducts its review of the balance of funding between local and central government.

"The [balance of funding review] group is grappling with the tensions inherent in any system of distributing central funds to local level as well as the consequences for equity if more money were to be raised locally," said Stewart Wood of the Treasury's Council of Economic Advisers.

"And it will need to consider how the funding system would work if councils were allowed to raise more funding themselves."