Londoners in wealthier boroughs face rising council tax bills or a hit to local services under a £2 billion change to town hall funding.
The reforms aim to channel more funding into more deprived parts of the country and rural areas and are set to benefit the North and Midlands.
They will also reset the business rates retention system to “incentivises local authorities to help their local economies grow by better matching the system to local need”.
This change could hit London boroughs which collect large amounts of business rates compared to many other parts of the country.
Announcing the major shake-up, local government minister Jim McMahon said: “We will work with councils to fix what is broken, moving around £2 billion of funding to the places and communities that need it most and modernising council tax administration.
“No-one will suffer from deteriorating services just because they live in an area with low house prices or high demand for social care, or in a rural part of the country.”
But leading economists warned that “leafier suburban” boroughs, such as Kingston, Richmond, Bromley and Barnet in London, could lose out.
They also believe that ministers may give boroughs such as Westminster and Wandsworth special permission to raise council tax by more than five per cent if their finances are very hard hit.
“Under the new system, councils' funding from central government will reflect how much they could raise themselves from council tax if they set their bills at the national average of around £2,000 a year,” said Kate Ogden, senior research economist at the Institute for Fiscal Studies.
“Some inner London councils - particularly Wandsworth and Westminster - set much lower bills than this currently, and might see large cuts to the amount of funding they receive from central government.
“They may need bespoke arrangements to transition to the new system over the next three years.”
A Westminster City Council spokesperson said: "Like all councils we will need some time to work through the funding reform data and proposals, so won't be able to comment until we have completed that work."
The proposed reforms will put upward pressure on council tax in wealthier parts of London, its commuter belt and the wider South East.
But if the local authorities are already increasing it by the maximum 4.99% they will generally not be able to put it up further and instead will suffer a blow to their overall budget.
Many councils in London, and beyond, are already dealing with financial crises.
Tony Travers, local government expert at the London School of Economics, said there was a strong case to update the “need” criteria for council funding.
However, he stressed: “With the Spending Review, Infrastructure Plan and now this local government funding proposed reform, all of them produce the strong sense that the Government is prioritising the needs of the rest of the country over London.”
Key council tax and funding reforms now being proposed by the Government include:
* Recognising the remoteness of rural areas to take into account additional costs of delivering services
* “Properly recognising” deprivation in urban areas so services that support the poorest in communities are properly funded.
* Updating the formula used to work out funding for local authorities that provide adult social care so it properly reflects the demands of the ageing population
* Changes to the administration of council tax so that it can be paid over 12 months rather than ten, its collection and enforcement, including to stamp out “unacceptable aggressive” practices.
London Assembly member Alessandro Georgiou, the Tories’ City Hall spokesman said: “After a disastrous anti-London Spending Review...we now face the prospect of tax rises on workers in our city who are struggling with the economic consequences of a Labour Government.”
The Government is consulting on the changes and plans to start implementing them over three years from next April.
© The Standard Ltd