A massive hike in council tax is set to be announced by Labour, with householders in parts of the country facing huge increases. London and the south east will be hardest hit, with Local Government Secretary Steve Reed considering lifting current rules that ban authorities from imposing rises of more than 5%.

Even with the current restrictions, councils are allowed to increase charges by more than the rate of inflation, and average Band D council tax in England rose this year by £109, to £2,280. But authorities are currently unable to introduce higher increases without holding a referendum of local residents, which they are almost certain to lose. The cap would be lifted for a handful of the most wealthy councils in the country under the proposal.

Mr Reed is said to be planning to announce that this rule is being lifted in parts of the London and the south. The councils affected are those which are considered to have the lowest financial needs, often because they have a relatively wealthy population.

Their funding from the Treasury is expected to be cut, with cash sent to authorities in the north and Midlands instead. Southern councils will be told that they can replace the lost money by increasing council tax paid by local people instead.

A spokesperson for the Ministry of Housing, Communities and Local Government said: “This is complete speculation. Council tax rises are limited to 5% without a local referendum, and we have not made any decision to change that.

“We have made £69 billion available for council finances and will fix the outdated and unfair funding system we inherited, so funding finally matches local people’s needs and councils can deliver better public services.”

Meanwhile, Conservatives have hit out at Labour’s plan to abolish some local councils, with smaller authorities set to be merged or axed in order to create more “unitary” councils.

A consultation has been launched about possible changes in Sussex, Suffolk, Norfolk, Essex and Hampshire.

Sir James Cleverly MP, Shadow Local Government Secretary, said: “Labour say they are committed to empowering communities, yet they are forcing many of those communities into top-down reorganisation directed from offices in Whitehall.

“Labour need to come clean on whether they intend to deny democracy again by cancelling these council elections for a second year in a row, having said they wouldn’t.

“As council tax soars on Labour’s watch, residents are getting less say in how their tax money gets spent. Only the Conservatives can be trusted to ensure residents get a fair deal.”