Council tax should be reformed and tax rebates automated so £1.8 billion of unclaimed benefit can be used to help the poorest households, according to a new report.

The Lyon's Inquiry, which was instigated at the request of the chancellor and the deputy prime minister in 2004, recommends that additional tax bands be added to help those in the lowest value properties and that all households be re-evaluated. Currently they are still based at their original 1991 valuations, when house prices were considerably lower than today.

The report also says that that the current business rates system should remain, that there should be a commitment to a major decrease in ring-fencing and that capping should be abolished.

The leader of Hounslow council was cautious in welcoming the proposals and believes the public's indifference towards the report highlights the difficulty local government faces.

Council leader Coun Peter Thompson said: "The average person probably won't have heard of the Lyons Inquiry and will be wondering what all the fuss is about. Some might even be forgiven for thinking it's the Government's response to a particularly worrying escape from London Zoo!

"This lack of interest in Lyons among the wider public is a good illustration of the problems local government faces - people are genuinely, and understandably, confused about what it does and doesn't do.

"While local government specialists pore over the findings, most people will be thinking "So what?" They are more concerned about whether their child's school is giving them the best education or what is being done about local streets."

The Lyons Inquiry identified that people want greater clarity as to what their council tax is paying for, who is responsible for what and a greater say over what goes on in their area.

It's short-term recommendations include greater flexibility for local authorities to place-shape with less control from the centre, changes to improve fairness of council tax, recognising that council tax benefit is a rebate, improving transparency in the funding system by being clear about the contribution made by national taxation and improving incentives for local authorities to promote economic prosperity and growth.

Medium-term recommendations include the Government revaluing council tax and to consider assigning a fixed proportion of income tax to local government.

Long-term objectives for future governments include more reform options such as local income tax or re-localisation of the business rate.

Coun Thompson said: "We welcome Lyon's call for greater flexibility. However, we are disappointed that the recommendations do not go far enough and do not give councils the freedom and flexibility to decide what is best for their local circumstances. I believe authorities must be freed from the control of central Government to allow them to become more accountable to residents.

"But, as we all know, the devil is in the detail, so whilst we applaud the call for more local accountability, we would need reassurances that the costs are not a further burden on local residents.

"We look forward to seeing how the Government responds to the Inquiry and how it sees Local Government's role in the future."