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Rachel Reeves is set to target middle class families by introducing a new levy on hundreds of thousands of homes in the Budget in a bid to raise £600million.
It is believed one in ten homes in England – currently designated Band F or above for council tax - will be revalued and could be under threat of an additional charge.
While it is dubbed ‘the mansion tax’ by Labour insiders, suggesting it will only hit the wealthiest, it will affect a share of the 1.3 million middle-class families living in Band F properties.
The surcharge is expected to hit families living in London and the South East where house values are higher.
They could face annual surcharges of hundreds of pounds on top of bills which already average £3,293.
Meanwhile the majority of more than 150,000 homeowners living in the most valuable properties in Bands F, G and H face paying thousands of pounds more each year.
Around 2.4 million of these properties, representing the one in ten English homes, are expected to be revalued by the Treasury to enable them to levy the tax.
A council tax surcharge is then likely be applied to around 300,000 of the most valuable homes.
Reeves is seeing it as one of a raft of measures to bring in funds to raise an estimated £25billion to shore up the country’s finances after she abandoned her plan to raise income tax.
Experts warn the uncertainty the new tax could impose on millions of homeowners could be catastrophic for the property market.
The system could see up to a quarter of homes revalued in some areas with over 15 per cent of all homes in London and the South East falling within the scope of the new levy.
Shadow chancellor Sir Mel Stride accused Labour of waging ‘a class war against middle England’.
He told the Telegraph: ‘If Starmer and Reeves decide to introduce a new tax raid on family homes, they will be punishing aspiration and hitting hardworking people.
‘Under Labour, nothing is safe – not your job, your home, your savings, or your pension.’
The ‘mansion tax’ raid has come onto the table as one of a number of other likely tax measures following last week’s confirmation by the Treasury that income tax will not be hiked on November 26.
The controversial planned income tax rise of 2p in the pound would have been in direct contravention of Labour’s manifesto promise.
But the Office for Budget Responsibility (OBR) is believed to have concluded that it would not generate as much money as expected.
News that the widely-expected rise had been ditched triggered accusations of a chaotic economic strategy and markets were thrown into disarray.
This was exacerbated by fears of a leadership coup against the Prime Minister.
England’s council tax system has come onto Labour’s radar because it has often been called ‘regressive’ by economists.
It is based on property values from 1991 and means that people living in smaller homes often pay proportionally more in tax than those in larger properties.
Other options being considered after a review commissioned by Minouche Shafik, Sir Keir’s chief economic adviser, include a full revaluation of properties.
But a separate surcharge is currently seen as the most efficient way to collect extra money. Sources say that, while higher property taxes are certain to come in the Budget, the details of any plan could still change.
Any new levy would follow a Valuation Office Agency reassessment and would be unlikely to be introduced until 2028.
The new tax could also be deferred until homeowners move home or die, it is understood.
‘We are witnessing the most shambolic pre-Budget period in memory,' Shadow Chancellor Mel Stride told the Daily Mail.
'The constant leaking, briefing and kite-flying is fuelling uncertainty and damaging our economy.
'Markets are unnerved and business confidence is at a record low. This is chaos on an industrial scale. We are becoming an economic laughing stock under Labour.’
Former chancellor Sir Jeremy Hunt told Times Radio: ‘The whole world is reading this information and they’re looking at British economic decision-making.
'And it looks very chaotic and I don’t think that’s a good thing.’