Ministers consider two new council tax bands for homes worth more than £1m

The Treasury is examining proposals to add two new council tax bands at the top of the scale in England, covering homes worth more than £1m and £2m, in what would be the first change to the system since it was introduced in 1993.

Officials have modelled a Band I for properties valued above £1m at today’s prices and a Band J above £2m, with the two bands paying roughly three and four times the Band D charge respectively. Internal estimates seen by the Daily Meridian suggest the change would affect about 390,000 homes and raise £1.1bn a year, of which two-thirds would come from London and a further fifth from the south-east.

Council tax bands in England are still based on valuations from April 1991. The current top band, H, applies to any home worth more than £320,000 at 1991 prices, which means a £900,000 semi in Croydon and a £15m house in Kensington pay the same, a maximum of twice the Band D rate. Wales revalued in 2003 and added a ninth band; Scotland and England never have.

“The problem with a full revaluation is that it creates millions of losers overnight, which is why every government since 1993 has run away from it,” said Dr Helen Castellanos, a senior research fellow at the Institute for Fiscal Studies. “Adding bands at the top is the politically cheap version. It raises real money from people who can plainly afford it, but it leaves the rest of the system as absurd as it was.”

The idea was floated by several think tanks before the election and has supporters in the Treasury, which is looking for revenue ahead of the budget next month without breaching commitments on income tax, VAT and national insurance. The money would flow to local authorities rather than central government, which officials believe makes it easier to defend, although ministers could offset it against grants.

The proposal faces resistance from London MPs of all parties, who argue that it would hit older residents who bought modest homes decades ago. “A pensioner in a Victorian terrace in Hackney did not become rich; the street did,” said one government backbencher. “If this comes with no deferral scheme, I will vote against it.” Treasury officials are understood to be examining a provision allowing the extra charge to be rolled up and paid from an estate on death or sale.

The Local Government Association said councils would welcome “any step towards a fairer system” but wanted a commitment to a full revaluation within the parliament. A Treasury spokesperson said the government “does not comment on speculation ahead of fiscal events” and that council tax “remains a matter for the budget”.