Council tax should be retained but reformed to maker it fairer, the local government minister has said while publishing a report on local taxation.
Council tax bands could be revamped under new proposals
Setting out the findings of the Balance of Funding Review, Nick Raynsford said the working group had looked at the idea of increasing council tax bands.
They also suggested other forms of local taxation, such as reformed business rates, could be considered.
An independent inquiry into its findings would now be set up, he added.
The inquiry, under Sir Michael Lyons, would look at ways of reforming the council tax system in a careful and considered way and report back at the end of 2005, Mr Raynsford said.
"We are well aware of the issues with the current system of local government finding and the arguments for change.
"That is why we commissioned the Balance of Funding Review to look into them.
But the review was never meant to be a "blueprint for reform" but to "gain consensus" on the broad issues, he said.
"And that is why we are announcing the next stage - an independent inquiry that will build on the Balance of Funding Review's findings and take matters forward in detail.
"We can then take firm decisions for the best way forward to put in place the fair system of local government funding that is our objective.
Claims many people would be hit with huge increases in council tax were "simply untrue", Mr Raynsford said.
Press reports had suggested people living in homes worth more than £170,000 would shoulder a greater financial burden - lifting the load from those living in cheaper homes.
"As the report makes clear the review has been conducted for the government and not by the government.
"This is not a statement of government policy," Mr Raynsford added.
This was just the start of the process and a lot more work would follow, he said.
But shadow minister for London Philip Hammond pointed out that Mr Raynsford himself had chaired the review.
He argued the government was heading for a retained council tax system but with large increases for high value properties.
Ministers were "burying" plans for third term tax rises in the review so families would not know their plans ahead of the next general election, Mr Hammond said.
The Sunday Telegraph reported council tax bills for the most valuable properties - worth more than £620,000 at current prices - could rise from their current level of £2,334 a year to £6,224 in three years.
For homes in the £310,000 to £440,000 bracket, charges could go up from £1,949 to £2,982, the paper said.
Those with homes worth between £170,000 and £230,000 would reportedly see them rise from £1,424 to £1,556.
Liberal Democrat local government spokesman Edward Davey said: "We need to scrap council tax for the American and European system of local income tax."
Local Democracy think tank the Local Government Information Unit warned that the setting up of another inquiry into council tax meant a crisis was likely next year.
It added that unless ministers find extra funding to bridge the £1bn, identified in town hall finances, there will be further pressure to raise the council tax sharply next year.
Services whose funding was not ring-fenced might also be hit, it warned.