Plans for reforming the council tax have moved up the political agenda amid reports that ministers are preparing to shelve the controversial charge.

Local government minister Nick Raynsford revealed on Monday that the controversial tax will be scrapped in its present form within four years.

And on the same day the Liberal Democrats set out their plans to overhaul how the country pays for local government.

Following last year's inflation-busting rises, Raynsford told the Times that the current system of eight tax bands will be replaced by a scheme where the bands are set regionally to reflect local property values.

And under his plans there will be both a new top band for the most expensive properties and a new lower band for cheap homes.

"We recognise the problems and unfairness within the existing council tax system and indeed set up our balance of funding review specifically to address these and explore improvements," said local government minister Nick Raynsford.

He also sought to place blame for the current political difficulties on the Conservative administration which last tried to reform the system and moved from a local system of rates to the poll tax and finally to the current council tax.

"As the sad history of bodged reform such as the poll tax tells us, it is very dangerous in this complex field to seek over-simplistic solutions and to promise painless reform."

Local government tax has proved to be a poisoned chalice for ministers. The policy was a key factor in the downfall of Margaret Thatcher's premiership following riots across the country.

The issue took greater prominence last year when many councils had to introduce tax rises in double figures.

Raynsford admitted last year that the tax had reached the limit of affordability and had instigated a review.

His comments reveal for the first time how ministers might change the system.

The Liberal Democrats have announced they would be staying with their pledge to move to a system of local income tax.

Party leader Charles Kennedy promised a fairer and more redistributive local authority tax to the present property value based system.

Amid recent protests at rising council tax levels, the party will be hoping to capitalise on growing public unease and media criticism of the government's policies.

The tax would be levied at an average of 3.75 per cent on money earned up to £100,000 per year.

The first £5,000 of income would be exempt as would salaries above £100,000, with the Lib Dems already pledging to tax top earners at 50 per cent.

Insisting that the policy is a "a fair and affordable alternative to council tax", Kennedy said his proposals were based on an ability to pay and similar to systems already in use in the USA, Sweden and Japan.

"A local income tax would be fair, effective and internationally it has been tried and tested and there is no reason it can work in other countries but should not be allowed in our country," he said.

The Lib Dems also say their plans will bring £300 million annual savings in administration costs as the tax would be taken straight out of wage packets by the Inland Revenue.

As part of their "axe the tax" campaign, the party also launched a new website that includes an online petition to end the council tax.

Ahead of the launch, Kennedy told the BBC that around three out of 10 households would pay more tax as a result of the change.

"We have seen the quite swingeing patterns that are taking place in many parts of the country at the moment," he said.

"What we have said and we have been quite upfront with people about this... is about seven out of 10 householders would gain as a result of moving towards local income tax, rather than council tax.

"We feel that, going on international experience, that income tax, progressively applied is a fairer way of going about things.

"What we are saying is, based on your income and the income stream that you receive as an individual citizen - that should be the determining factor for what you contribute."