Council tax to soar again

London faces a £1billion council tax bombshell with wealthy residents being forced to pay more to subsidise the less affluent North.

Average bills in the capital already top £1,000 as a result of the Government switching resources from the South-East, rising local authority costs and Mayor Ken Livingstone's extra £50 a year to pay for more police and buses.

Now council leaders warn that hundreds of thousands of London households risk being "heavily penalised" under an impending revaluation of council tax bands.

Sir Robin Wales, Labour chair of the Association of London Government, said: "If we think of the way property prices have risen in London, there are real issues to address. If council tax is set regionally, it will be all right. Otherwise, poor people in London are going to be hit because they may be living in council houses that are worth a lot of money."

Council tax bands are used to calculate how much each household pays in relation to the value of their home. They are meant to ensure that poorer families pay less than wealthier families. But the bands have not been reassessed since 1991, since when house prices in London have rocketed in comparison with the rest of the country.

The revaluation is due to take place in 2005, with the new bands coming into effect on 1 April 2007.

A report being presented today to the ALG leaders' committee estimates that London could lose up to £1billion in government grants because residents will be paying higher council tax. The grants bridge the gap between the amount each council receives from its tax payers and how much it needs to run services. But if London's councils raise more through higher tax, its grant will be cut - meaning residents will be paying more for the same level of services.

Sir Robin, the Mayor of Newham, added: "Our houses are worth more but people may not be earning more, and that is inequitable."

London already has a higher proportion of properties in the top six council tax bands than the rest of England. More than half its homes are in band C and benchmark band D categories, while half the homes elsewhere fall into the two cheapest bands, A and B.

The ALG report says: "If the new system remains broadly similar, the revaluation is likely to lead to many more [London] properties falling into higher council tax bands, relative to the rest of the country." The ALG now plans to join with Mayor Livingstone's office to lobby the Government, emphasising the number of lowincome households living in homes whose values are not an accurate reflection of the families' wealth.

But the Government says it has "no plans" to introduce a regional banding system to eliminate anomalies in the housing market.

There is the possibility of increasing the number of bands, but this could also work against London. Additional low bands would mean councils outside the capital needing more government help, while more higher bands would penalise the wealthy, of which London has a greater share.

A spokesman for the office of the Deputy Prime Minister said: "It's far too early to speculate on the likely impact of the revaluation."