The housing, communities local government committee also said councils needed funding certainty and called for a radical revaluation of council tax.

In the report Local Government Finance and the 2019 Spending Review the committee said business rate retention was “too complex and lacks transparency – the system attempts to create incentives for growth whilst also redistributing revenues according to need”.

Business rates were coming under pressure from changes in the economy – such as the move from physical shops to online – and “it is hard to see how it will endure over the long term”, it added.

MPs urged the government to simplify the system by restoring revenue support grant to redistribute money to councils in need and to consider “alternatives to business rates as a revenue stream for local government, given the risks to this tax over the long-term”.

The new government has not confirmed whether it will move from 50% to 75% business rates retention in 2020-21, as planned by the previous administration.

The report published today said council tax had become regressive and lacked any real link to property values, since there had been no revaluation since its 1991 inception.

“As part of a review of council tax, the Government should consider the case for creating new council tax bands at the top and bottom of the scale,” it said. “A revaluation for council tax purposes is long overdue. The Government should hold a review into how a revaluation could be implemented without dramatic increases for individual households.”

The report added any revaluation should be revenue neutral at national level with bands adjusted to reflect changes in property prices over time.

The committee also criticised ministers for having allowed the current four-year settlement to near its end with no replacement announced and warned: “Without clarity about funding in 2020 some local authorities will need to prepare for the worst, making decisions which may unnecessarily reduce spending and represent poor value for money in the longer term.”

The committee called for a multi-year settlement for local government running one year beyond the spending review period and assurance as soon as possible on 2020–21 funding.

Committee chair Clive Betts (Lab) said: “The Government has a duty establish a funding settlement that enables local authorities to provide services to meet the needs of their local communities. Over the last decade we have seen a regular chipping away at funding, while adding further statutory obligations for them to meet.

“This constant stress on local government is now compounded by a failure to even set out how much money they will be allocated in the next financial year. The time has come for the Government to get real with local government funding. They must make clear exactly what services they expect to be provided and dedicate sufficient funding for this to be achieved.”

Mr Betts said the budgetary demands made on councils by social care meant it would “need a dedicated funding solution”, reiterating points made in the committee’s June 2018 report Long-term Funding of Adult Social Care.

Local Government Association chair James Jamieson (Con) said: “The committee is right to recognise our call for securing the sustainability of local services to be the Government’s top priority.

“Its forthcoming spending round needs to confirm the continuation of key funding streams such as the Better Care Fund and guarantee councils will have enough money to meet the growing demand pressures they face next year,“ he added.

Paul Carter (Con), chair of the County Councils Network, said: “County authorities face the most financial pressure due to historic underfunding and acute demand-led pressures.

“As our analysis shows, local authorities face a £5.2bn funding gap next year, with county areas accounting for £2.1bn of this figure. County leaders are clear that filling this gap will result in further cuts to highly-valued and frontline services, unless extra resource is provided by the government.”

Rob Whiteman, chief executive of the Chartered Institute of Public Finance and Accountancy, said: “The committee is absolutely right in its conclusion that local government simply cannot achieve financial sustainability without reform to existing revenue streams and devolution of stronger revenue raising powers.

“In the immediate term, government must provide clarity over both its expectations of the sector and the funding position beyond 2020 to allow councils to plan for the future and the continuing rise in demand for services.”