Anyone owning a house worth over £1 million in England faces a doubling of council tax, The Times has learnt.

A report on local government finance, to be published with the Budget next Wednesday, is expected to recommend one or two new “top-rung” council tax bands.

At least 100,000 people who currently own houses valued at more than £1 million could see their annual council tax bill almost double — from an average £2,640 to £4,400 — under one plan being considered. A second option would be to increase bills by about £1,000 a year.

The number of people hit by the new bands is likely to rise in coming years. The average house price in England has doubled over the last four years, while in London nearly 4,000 houses sold for £1 million last year, compared with just over 1,600 in 2001.

Middle class families in the South East, where tens of thousands of homes now sell for more than £1 million, are likely to be the hardest hit. This group has also suffered most from tax squeezes on the higher tax band and tax changes to pension funds.

The money raised by the new bands could finance a cut in the average bill of the poorest householders from £880 a year to about £750 a year.

The current top band H covers homes worth an average £750,000 but the new band I would affect those with houses worth about £1million.

Informed sources suggested that Mr Brown and Ruth Kelly, the Communities Secretary, are both sympathetic to the proposals drawn up by Sir Michael Lyons. However the Government is not likely to respond in detail next week. A £2,000 rise in council tax for the wealthy could prove politically unpalatable but any significant increase would show that Mr Brown favours a more progressive council tax.

Any new banding would face strong opposition from the Tories, the Local Government Association and pensioners groups — many older people have seen the value of their homes soar, but have had no corresponding rise in their incomes.

The current bands are based on property valuations last carried out in 1991. A Band A property then worth £40,000 is now worth about about £100,000 in Greater London while Band H property, then valued at £320,000, is worth nearer £750,000.

Sir Michael is expected to propose transitional protection so that householders would not see an overnight jump in their council tax. He is also likely to recommend extensive changes to council tax benefit to help poorest groups.

Initially Sir Michael rejected extra bands claiming they did little to improve fairness but he reconsidered the idea last autumn and it is now in his final report which has already gone to the Treasury.

Sir Michael is also said to have recommended new charges that councils could impose. These could include new charges for rubbish disposal and other environmental taxes.

Yesterday in an interview with The Times, Phil Woolas, the Local Goverment Minister, made clear that the Government would keep capping council tax. He also said that a property tax would stay but refused to comment on new tax bands. He dismissed reports claiming that homes would be revalued before the next election.

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