Homeowners could be taxed on rising property prices by their local council, a senior adviser to the Government has warned.

Sir Michael Lyons, former chief executive of Birmingham City Council, suggested residents could be taxed more if the value of their home shot up.

He is conducting a review of the council tax on behalf of Gordon Brown, the Chancellor.

Sir Michael also confirmed he was considering allowing councils to charge directly for services which are currently provided "free" out of taxation.

He was appointed by the Government two years ago to reform council tax and find a way of ending inflation-busting increases.

Householders across England face a tenth successive year of above-inflation rises, according to a study by the Local Government Association.

A survey of 100 councils found bills would rise by four per cent on average this April, while inflation is running at 2.4 per cent.

Debate has focused on reforming the council tax to make it fairer, or introducing a local income tax.

But Sir Michael, who was Birmingham's chief executive from 1994 to 2001, said he was considering making households pay more if they had become wealthy through rising house prices.

He said: "Income isn't the only issue to take in to account. If you have two houses next to each other who have got the same income, but one of them has very considerably more wealth, it doesn't seem inappropriate to reflect on whether those households with more wealth should make a bigger contribution.

"Particularly, if that wealth has been increased as a result of living in a particular community.

"House prices in this country have gone up faster in some areas than in others. So communities that are seen to be good to live in, your house price is more likely to rise by above average."

Under the existing council tax system, bills are simply based on the value of a property and do not take into account how quickly the value has increased.

Asked if he was considering a local capital gains tax, Sir Michael said: "I'm not introducing speculation about any new taxes."

Sir Michael also confirmed he would look at the possibility of allowing councils to charge for services which are currently funded from taxation.

"I believe there is a case for more local choice.

"That could mean some communities settle for less and pay less.

"Some will say, we want to see these services provided and directly paid for."

Caroline Spelman (Con Meriden), the shadow Local Government Secretary, said: "If property value increases in one area faster than another, that doesn't mean the cost of emptying the bins has increased and it is not something residents have any control over.

"Council tax already takes wealth into account by charging people more if they live in more expensive houses."

Sir Michael has invited local council leaders and chief executives to attend a conference to discuss the future of local government next month.

He will publish his findings in December. In the meantime, Local Government Minister David Miliband is expected to publish a White Paper in the summer setting out the Government's thoughts on city regions and elected mayors.