Householders are missing a chance to share in the results of huge profits generated by the soaring value of recyclable domestic rubbish, The Times has learnt.

The price of recyclable plastic, newspaper and cardboard has doubled in 18 months, giving councils a source of “green gold” that could be spent on improving local services. Many are locked into 20 to 30-year contracts with recycling companies and are unable to cash in on the higher cost of plastic and copper.

As the cost of commodities rises it increasingly makes sense for manufacturers to retrieve materials from rubbish instead of buying them new. Town hall leaders have toldThe Times that the sector is missing out on millions of pounds that would come from trading commodities themselves or negotiating better contracts. They said that such profits could go to improving local services and even cutting bills.

Such is the concern over the complicated waste contracts that the Audit Commission is looking at the length and cost of the deals as well as the financial risks. The value of raw materials and the inequity of council returns are being examined as part of the inquiry. It reports next month.

Local authorities such as Kent County Council admit that they could make up to £1 million a year by selling recyclable materials if the 25-year deal could be renegotiated. Westminster council, which has a seven-year contract to share profits as prices rise, believes that town halls are sitting on a fortune. “Where there’s muck there’s brass,” Mark Banks, Westminster’s waste strategy manager, said. Any profit made will be ploughed back into services or to lower council tax rises, he said.

This year alone the rising cost of oil – used to make plastic – has pushed prices of domestic rubbish even higher. The sale price of mixed plastic bottles has nearly tripled to £230 a tonne in the past six months. Six years ago it was £10 per tonne.

With plastic processing advances in coming months, yoghurt pots, bags, food packaging and any plastic containers will be even more sought after as manufacturers recycle plastic to avoid buying oil. Newspapers and cardboard now sell for £100 a tonne, double what they were fetching early last year. Metal from cans was £80 a tonne at the start of 2007 and has risen to £200. A tonne of copper now sells for more than £3,000, compared with a tenth of that in 2002.

The sharply rising prices give councils an added incentive to boost recycling – apart from having to meet EU landfill targets – and many are keen to cash in. But the fixed-term deals negotiated by many authorities, set at the prices of recyclable materials several years ago, allow the contractor to reap the reward.

Paul Bettison, the chairman of the Local Government Association’s environment board, said that councils had tightly judged decisions:

He admitted that in a few years, recycled goods could be traded on the futures market like other commodities. “The markets will be making money out of the sale of recyclables and some councils will too. Not all are negotiating long-term deals.”

Mr Bettinson wants the Government to make plain that councils are sitting on a goldmine. “We need to get the message to our authorities and say, ‘Let’s see what we can get out of this without taking silly risks.’ ” Mr Banks said: “Many councils locked into fixed-price contracts may be missing out on tens of thousands of pounds of revenue from rising prices of recyclable materials. Westminster takes a commercial approach to contracts so that we benefit in rising market situations but with a safety net in place when markets inevitably turn.”

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