Central government has been blamed for this year's record increases in council tax.

In a report published today the Audit Commission describes the current system of local government finance as "fatally flawed".

Edward Davey, Liberal Democrat ODPM shadow,said:"Council Tax payers are in for more bad news next year.The Audit Commission's report places the blame for last year's Council Tax rises firmly at the feet of government ministers. Looking at the 2004 grant settlement for local authorities, we are in for even further hikes in Council Tax next year.

"Average Council Tax rises are likely to increase by at least 8% - nearly four times the rate of inflation. Some people could end up paying a lot more.

"These figures will alarm council taxpayers across the country, as they show government ministers have completely ignored their plight.Ministers claimed this year's settlement was generous, but once the increases for schools are excluded, it becomes clear that this settlement is Labour's worst so far.

"With 297 out of 387 local authorities seeing these grants rise at less than inflation, council taxpayers will end up filling the hole left by Ministers.

"By failing to fund councils at even inflation levels, government ministers will reap the whirlwind of inflation-busting Council Tax rises."

Forum Response: Local Government Association

LGA chairman Sir Jeremy Beecham said: "The evidence speaks for itself. This report nails on the head any belief that councils have been frivolous, careless or politically motivated when taking hard decisions on council tax and spending on vital services."

"The Audit Commission found no connection between the political control of a council, and its decision on council tax levels - instead a very clear connection is drawn between government grant levels, additional pressures and the level of council tax increases.

"In fact, the report found that councils have been using up their balances in an effort to keep council tax down. These are the actions of responsible councils looking to lessen the burden on council tax payers while protecting services to those most in need. Obviously however, using up dwindling balances is as equally unsustainable as above-inflation council tax rises.

"The Commission agrees with our belief that the current system is too complex, lacks proper accountability and is therefore ripe for reform."The answer lies in the balance of funding review which the LGA is sitting on with local government minister Nick Raynsford. Our goal is a fairer local taxation system that gives more responsibility to the local council for spending decisions.

"We must throw away prejudice and examine all the options with an open mind - whether that is a reformed property tax, elements of local income tax, a return of business rates to local control or a combination of these measures.

"I believe we can produce a system of local government funding that reinvigorates local democracy and further improves the quality of services."

Forum Response: Local Government Information Unit

Dennis Reed, chief executive of the LGIU, said: "These Audit Commission findings provide a useful snapshot of the present situation in local government finance. It is consistent with research commissioned by the LGIU into the long-term trends in town hall funding since the 1980s that set the scene for the current council tax crisis.

"All of the experts can't be wrong. It will no longer be tenable to portray local authorities as generally responsible for excessive council tax increases when their plight is not of their own making. It is now vital to move the current debate beyond the blame mentality and the threats to cap councils.

"Councillors around the country are again facing a miserable choice between high council tax rises or service cuts. They will probably choose a combination of both, boxed in by an unsustainable finance system and a regressive tax.

"Those who rely on local services and who worry about being dragged by large council tax increases into the dependency of means testing need 'a little less conversation, a little more action' from the government on the reform of the central and local balance in town hall finance and of the council tax."