My Socialist force are in street clothes with a red armband- it's very simple to carve the armband into the mini with the edge of a file. It takes a few seconds and looks really cool. I have seen it done with green stuff, but if your not carefull it looks like they have a swimming float on.
I am also planning a Local Defence force, and to make them look sufficantly different I am going to do head swops, and use the 'tommy' heads from West Wind, with helmets on (as I am using teh same basic selection of minis for both forces. I might even give the LDF a white arm band or something too.