Mr Duncan Smith says Labour is back to its old ways

Iain Duncan Smith used a keynote speech to the Tory local government conference in Coventry on Saturday to suggest the government had unfairly manipulated the latest round of grants to councils.

Mr Duncan Smith said they had been "fixed" to benefit Labour councils.

Opponents of the settlement say Labour councils in the north and Midlands have benefited from better grants than more affluent areas in the south east.

'Labour mates'

Mr Duncan Smith told his audience: "Years of effective and efficient financial management by Conservative councils are being undone through a local government finance settlement that is nothing short of a fiddle.

"[It is] a settlement that rewards Labour mates in Labour councils.

"Labour are reverting to type. They are using council tax to attack middle England.

"There are now ordinary families, in ordinary homes, who now pay at least �1,000 a year in council tax. The average council tax bill has increased by 60% since Labour came to power."

You are getting a subsidy, effectively, of something above �60 per council tax payer from Tory councils to Labour councils Shadow deputy prime minister David Davis

Mr Duncan Smith said one of the principal Tory themes in the run-up to the local elections would be a challenge to the government, on behalf of taxpayers, to "give us our money back".

For Labour, Local Government Minister Nick Raynsford said it was "totally untrue" to suggest funds had been taken away from Middle England to help northern areas.

Mr Raynsford added: "The Tories are repeating the same old lies on council tax to try and hide their real agenda of a 20% cut in public spending across the board.

"In their last four years in power, the Tories cut 7% from local government grants. In contrast, Labour have increased these grants by 25% in real terms, since 1997."

'No leadership threat'

Earlier, shadow deputy prime minister David Davis accused Labour of "rigging the system" against Conservative voters.

"You are getting a subsidy, effectively, of something above �60 per council tax payer from Tory councils to Labour councils," he told BBC Radio 4's Today programme.

Mr Davis denied Mr Duncan Smith's leadership was under threat, adding he wanted to see him win the next general election.

He predicted the Conservatives would win an "extra 30 seats" at the local elections.

Tory Chairman Theresa May has said the party has modest expectations from the elections because of success last time around.

Theresa May called for unity

Speaking at the Welsh Conservative conference in Cardiff, Ms May issued a fresh plea for party unity.

She said Tories had to get behind Mr Duncan Smith and stop the damaging in-fighting.

Ms May said: "It seems remarkable now that so much was made of so little. Whether this was due to members of the media or members of our party I don't know.

"But I do know that we have now drawn a line under the affair. Now is the time to get behind Iain Duncan Smith and to focus our fire on our opponents. We can't keep talking to ourselves."

People know they are paying more and more tax for less and less return and they are becoming angry Theresa May

Ms May said her seven months as party chairman had been tough but she added "I have never once thought of giving it up".

Her comments will be seen by many as a criticism of Michael Portillo after he attacked the Tory leader's decision to sack key Conservative Central Office staff.

She also echoed Mr Duncan Smith's criticisms of the government's tax policies.

"People know they are paying more and more tax for less and less return and they are becoming angry," she said.