Mr Healey also announced that councils were on track to make efficiency savings of £3.2bn over the past four years, the equivalent of £123 off the average Band D council tax bill - and £1bn more than the efficiency target they were set.
But he also called on councils to use this money as effectively and efficiently as possible, keeping up with public demands for value for money from their local public services.
Figures published this morning show that the council tax in-year collection rate in England last year was 97.1 per cent, up 0.2 percentage points on 2006-07, and 0.7 percentage points up on five years ago.
Local Government Minister John Healey said:
"Councils have continued to improve their council tax collection rates. Last year, councils collected 97.1 per cent of the collectable council tax, and I congratulate them on their efforts.
"Collection of council tax continues beyond the year in which it is due, and I urge councils not to let up the pressure, but to continue their good work on chasing arrears and make further improvements to their collection rates. It is only fair on other council tax payers that everyone pays what they owe.
"These collection rates, combined with the first ever three-year settlement giving every council an increase in funding, help put local Government in a strong financial position.
"Councils face increasing expectations from council taxpayers for well-run, efficient local services. That is why I have announced plans to give residents an update on efficiency on council tax bills.
"Councils should be spending taxes as efficiently as they collect them. This September, councils are expected to announce that they have achieved cashable efficiency gains of £3.2bn over the last four years, the equivalent of £123 off the average Band D council tax bill.
"Councils met their efficiency targets one year early, and are on track to exceed requirements by more than £1bn. But further efficiency gains can be made, which is why I want councils to save £4.9bn over the next three years, which could be used to reduce council tax bills or invest in local services, to give the public the value for money that they rightly expect."
Inner London Boroughs improved their in year council tax collection rate from 91.9% in 2002-03 to 94.7% in 2007-08, with Hackney, the most improved council, up from 79.5% to 92.4%. Islington, Sandwell, Teesdale and Brent have also increased their in-year collection rates by more than 5 percentage points since 2002-03.
Today's figures also show that the in year collection rate for non-domestic rates in England was 98.8 per cent in 2007-08, an improvement of 0.1 percentage points on the previous year and 0.6 percentage points higher than 5 years ago.
