PEOPLE living in the most expensive homes could see council tax bills soar under a funding shake-up.

Bills for the costliest homes - worth more than £600,000 - could rise to over £6,000, under proposals due to be unveiled tomorrow.

Everyone with a house worth more than £170,000 is likely to face higher charges.

However, people living in less expensive homes - costing under £130,000 - are likely to see bills tumble.

The shake-up is contained in a review of local taxation drawn up by an all-party Parliamentary group.

Local MPs today welcomed the review.

York MP Hugh Bayley said: "Council tax is unfair because it bears down most heavily on people who are on lower incomes, such as pensioners.

"This is why the Government set up a review to look for a fairer system.

"I am looking forward to hearing the proposals and what people in York think about them."

The aim of the 18-month review is for poorer households to pay less tax and richer homeowners to make up shortfalls.

The Government was today staying tight-lipped on the review. A Treasury spokesman called the report "speculative".

Speculation was mounting that homes worth between £170,000 and £230,000 would see council tax them rise from £1,424 to £1,556.

Shadow local government minister Caroline Spelman accused the Government of using the funding review to "increase council tax further by stealth".

She said: "This will punish pensioners and hard-working families who have lived in their homes a long time, the value of whose homes have risen, but who are on modest incomes and cannot afford even larger tax bills."

Liberal Democrat local government spokesman Edward Davey said: "Tinkering with council tax will not solve the unfairness of this hated tax.

"We need to scrap council tax for the American and European system of local income tax."

Sir Sandy Bruce-Lockhart, chairman of the Local Government Association, accused the Government of using local councils to underwrite its spending plans. He said public anger about the tax was already "very strong" and accused Ministers of promising extra spending on schools without giving councils enough central funds to pay for it.

Updated: 10:16 Monday, July 19, 2004