An independent inquiry into local government funding will examine how to make the council tax system fairer and more sustainable, local government minister Nick Raynsford has said.

The minister said that the inquiry's work will be informed by the Balance of Funding report which has been submitted to the government.

Leaked documents from the report over the weekend generated high speculation that the government was about to hit middle England and pensioners with massive increases in council tax by altering tax bands on housing. Now it seems we will have to wait until at least after the next election for the government to show its hand.

The Balance of Funding report concluded that council tax should stay but should be reformed. It also says that there are strong arguments for shifting the balance of funding towards more local funding - but only if the methods for doing this were desirable and feasible.

The independent inquiry will now:

• Make recommendations for the reform of council tax, taking into account the revaluation of homes in 2007
• Assess the case for giving local authorities more flexibility to raise extra money (meaning more money would be raised locally, and less centrally)
• Analyse the options for shifting the balance of funding - including local income tax, reform of business rates and other possible local taxes and charges
• Consider the implications for the financing of possible Elected Regional Assemblies
• Consider any implications that its recommendations have for other parts of the UK