The Local Government Association (LGA) said the increase, which is based on more than 100 draft budgets published by councils, was in line with the latest Retail Price Index.

But it warned that inadequate Government funding was forcing many councils to make massive efforts to keep council tax rises below 5%.

It added that funding problems were likely to deepen during the following two years due to lower anticipated increases in the Government grant from 2009 to 2011.

The LGA renewed its call for a shake-up of the council tax system that would make local authorities much less reliant on the Government grant.

It said around 75% of all council funding comes from central Government, with just a quarter of town hall budgets coming from money raised through council tax.

Sir Simon Milton, chairman of the LGA, said: "Nobody likes paying more council tax but this year town halls are making enormous efforts to keep bills down. It is a testament to the determination of councils that the average rise is likely to be close to the rate of inflation.

"Keeping council tax down has been made harder by several government departments shifting extra costs onto councils whilst limiting funding from central government to a real terms 1% increase.

"Council tax would have been a lot lower with a more realistic central government grant. The toughest financial settlement in a decade has left councils with difficult decisions to make locally."

He said: "The only way to get local government finance on a stable footing would be root and branch reform of how councils are funded so that they are less reliant on money from the Government."