The council tax system is ‘highly regressive and unsustainable,’ and needs ‘fundamental reform,’ progressive think-tank IPPR has argued.

A report by IPPR published today said the current system in the capital was ‘increasingly unsustainable as a source of local government finance’ due to its regressive features, discounts, exemptions, and the inconsistencies between residential and commercial taxation.

IPPR associate director, Luke Murphy, said: ‘Council tax now looks very much like the poll tax it replaced and it hits the poorest the hardest.’

The report read: ‘The council tax system takes too little account of ability to pay and is therefore unfair.

'Many of those on the lowest incomes are no longer protected and will be hit ever harder by council tax increases.

‘Council tax is becoming ever more important as a source of local government revenue, but its sustainability is undermined by its lack of fairness and its inefficiencies.

‘Increases in council tax are likely to become more necessary and frequent as a consequence of the wider context of local government finance.

'The case for reforming council tax is, in our view, overwhelming.’

The IPPR said the current system relies on values that are nearly 30 years out of date, and has called for council tax bands to be abolished and replaced by an annual property tax levied on owners proportional to the present-day value of homes.

It believes replacing council tax with a new property tax could help tackle wealth inequality.

The IPPR suggested the first stage of major reforms could be to devolve the system to London.

Chair of London Councils, Cllr Peter John, said: ‘Basing taxation on property values from 1991, which are now hugely out of step with current house prices in the capital, will only become more regressive as time goes on.

'We agree that reform is long overdue and strongly support devolution of council tax to London government.’

A Ministry of Housing, Communities and Local Government spokesman said: 'We are working on making the council tax collection system fairer and more efficient – so people are still treated with compassion while raising funds for public services.'