A prominent Labour-led council has issued a warning that it may need to implement a 150% increase in council tax for residents in order to sustain existing services, following a reduction in funding from the central government due to a new financial settlement.

The cabinet of Hammersmith and Fulham council has reached the conclusion, as outlined in a report set to be released on Monday, that such an increase would result in an additional weekly cost of £29.11 for households in Band D by the year 2027/28.

This west London council has indicated that it is facing a loss of over 50% of its government funding due to Labour’s “fair funding” review, a measure introduced last year aimed at reallocating financial resources from wealthier regions to areas most affected by austerity measures.

Government officials have contended that the review will necessitate reductions in funding for local authorities that have historically maintained low council tax levels. This is intended to encourage these councils to adjust their tax rates to align with national averages, thereby addressing funding gaps.

Hammersmith and Fulham, along with other councils including Westminster, Kensington and Chelsea, Wandsworth, City of London, and Windsor and Maidenhead, has been granted the authority to raise tax rates beyond the 5% limit in the upcoming year to help balance their budgets in light of the funding cuts.

Currently, a Band D household pays an annual council tax of £1,519, which includes a £510.51 surcharge from the City Hall, referred to as the Greater London Authority (GLA) precept.

According to a document reviewed by the Guardian, Councillor Rowan Ree, who oversees finance and reform, stated that the council faces “the most significant financial challenge in recent history” due to the revised funding formula. The council’s government funding, which was £150.5 million in 2025/26, is projected to decrease to £72.4 million over the next four years.

The report outlines various scenarios illustrating the substantial potential increases in the council tax element (excluding the GLA precept) that Hammersmith and Fulham may need to implement by 2027/28. A proposed 100% increase in the council tax element would raise it to £2,018 annually for Band D properties, leaving a budget deficit of £46.1 million, equating to an increase of £19.40 per week for affected families.

A 125% increase would result in a £2,270.25 annual charge for Band D properties, leading to a budget shortfall of £20.6 million, with a weekly increase of £24.25 for families. Meanwhile, a 150% increase would set the annual tax at £2,522.50, which would largely balance the budget under current assumptions, translating to a weekly increase of £29.11 for Band D households.

Under guidelines established by Angela Rayner at the beginning of last year, funding was intended to be redistributed from prosperous rural areas to urban councils experiencing the brunt of austerity. Government representatives have argued that these adjustments establish a more equitable system that acknowledges the heightened needs and limited council tax-raising abilities of authorities in “left-behind” regions.

However, Labour councillors in Hammersmith and Fulham claim to have managed to keep tax rates low through “ruthless” cost reductions in a borough characterized by significant deprivation. They assert that their economic growth strategy, Upstream London, has attracted over £6 billion in investments and created 17,200 jobs within the borough.

London boroughs impacted by the funding formula have raised concerns that the flawed measures of deprivation may undermine the government’s objective of ensuring that financial support is allocated according to need.

In an August letter to Andy Burnham, Conservative leaders from Kensington and Chelsea, Westminster, and Wandsworth councils called for a reevaluation of the proposed changes.

A representative from the Ministry of Housing, Communities and Local Government commented, “Local authorities determine their own council tax rates, but it is essential that they prioritize taxpayers in this process. We have allocated over £78 billion for council finances for the upcoming year, with most of the funding being unringfenced, allowing local leaders to allocate resources according to their specific priorities.”