Think-tank: Scottish Government has become more reliant on business rates to boost coffers

Council tax income would need to rise by 50% to return it to its previous parity but the political will for such a reform "remains in doubt", it said.

Parity could be re-established by increasing council tax bands or increasing the housing stock, although the latter would need adequate finance to boost housebuilding.

Councils are already being asked to provide more services with less money and may be unable to find any more money from efficiency drives or prudential borrowing, FAS said.

Local authorities may face the "politically difficult" choice of increasing charges for non-statutory services or cutting them, it said.

A FAS paper on local government funding challenges states: "The Scottish Government is increasingly relying more on non-domestic rates income (NDRI) to boost its coffers and less on council taxes.

"In 2009/10 council tax amounted to 5.6% of the total revenues raised and NDRI to 5.7%. By 2015/16 the respective shares are estimated to be 5.3% and 7.5%.

"Given the freezing of council tax in the last seven years, the percentage increase that would be required for this source of revenue source to return to being equivalent to the current level of NDRI revenue would be close to 50%."

It added: "Local authorities are required to balance their budgets so, given the current restricted funding outlook, yet more efficiency savings will be needed in order to meet demand.

"However, these savings will be increasingly hard to deliver following the years that such arrangements have already been in operation."

FAS said "prudent borrowing levels for some local authorities may have been reached".

It added: "Seeking to charge service users more may be one option to help fill any funding gap.

"What seems more likely is that non-statutory services will be at even greater risk than now, as will service quality levels that are deemed to be over and above the minimum necessary.

"The acceptability of raising service charges on vulnerable members of the community may prove politically difficult.

"Instead, pushing through service cuts and securing services at the cheapest price for their non-statutory needs may prove to be the easier option.

"Substantially increasing the number of households who pay council tax (ie, adding to Scotland's housing stock) and introducing new, higher council tax bands would help reduce this increase for current Scottish householders.

"However, the willingness of politicians to push through the reforms needed to secure such an increase remains in doubt."

Jo Armstrong, FAS executive director, said: "As budgets continue to tighten, while demand continues to rise, it is increasingly hard to see how the continued delivery of many of Scotland's key public services can be achieved by local authorities securing additional efficiency savings alone.

"At a time of impending elections and the implementation of new tax and spending arrangements across the UK, there is a real need for an honest and inclusive debate on the future role of local government; just what is it we expect local authorities to deliver and how should funding for those chosen services be raised?"

John McLaren, also an executive director at FSA, said: "The degree of local control in Scotland over future funding levels in relation to local business taxes, council tax and borrowing are all uncertain at present.

"As the recent devolution of powers in England, in particular to Manchester, have shown, the debate on who is best placed to fund and deliver local services is very much alive.

"A crucial part of this debate will be how to bring greater certainty to future funding levels, and with it the ability to plan long term, in order to help deliver beneficial, and necessary, structural changes."