When, a decade and a half ago, council tax was born, it was to solve a political problem. The Tories were desperate to get rid of the hugely unpopular poll tax, which had helped to bring down Margaret Thatcher.

The party even came up with a codename for the secret plan to introduce the new tax and to make it acceptable to the public. Operation Big Bertha included a rise in Vat from 15 per cent to 17.5 per cent to pay for a cut in local tax bills. It worked. The Tories had many problems during the 1990s but council tax was not one of them.

For Labour, however, council tax has been a huge headache. The burden of council tax has risen from £9 billion in 1995 to more than £20 billion today, helping (with swingeing hikes in stamp duty) to make Britain’s property taxes the highest in the world as a proportion of the total tax take.

Average bills have risen by 84 per cent in the past 10 years alone and polls show that of all Gordon Brown’s stealth taxes, this is the one that voters hate most.

In Wales, where a revaluation of property values has already taken place, the wounds are especially raw. More than 33 per cent of households saw their bills rise in 2005, while only 8 per cent saw them fall.

Malcolm Evans and his wife Sharon had spent £30,000 improving their home to make space for their growing family. But nothing escapes the beady eye of the new Welsh army of property inspectors. Soon after the work was completed the Evanses got a notice announcing a 35 per cent rise in their council tax bill.

“The house is obscured by high bushes so presumably [the inspectors] must have ventured into my garden while I was out to view it properly,” Evans told a reporter. “It felt very intrusive, very Big Brother, as if we were being spied upon.”

The chancellor does not have a secret plan to make council tax more palatable. If anything, things are set to get much worse. Proposals to be unveiled on Wednesday, the day of his 11th and final budget, are expected to call for big increases in council tax bills for many families across the UK, particularly those in London and the southeast whose property values have increased the most.

At a time when Labour is already struggling in the polls — today’s YouGov poll shows the Tories six points ahead — Brown cannot afford to alienate the southern middle-class voters who flocked to Labour under Tony Blair.

Yet the proposed shake-up of council tax, in a report he commissioned, risks doing just that. Sir Michael Lyons, former chief executive of Birmingham city council, is expected to call for a revaluation of houses so that council tax bills reflect their current market value. He is also expected to recommend the introduction of new higher tax bands for houses worth £1m or more, increasing the bills for those homes to as much as £5,000 a year.

Local councils are expected to be given the right to levy charges on top of the basic annual bill for additional services. Refuse collection, for example, could be charged according to the weight of rubbish produced by each household. Even extra charges for the use of local education and health facilities have not been ruled out.

Using the Freedom of Information Act, Caroline Spelman, the Conservative local government spokesman, has forced the publication of the new valuation handbook that inspectors might one day use to assess the value of properties for council tax in England.

It shows that valuations will be affected by factors such as living in a quiet road or cul-de-sac; near convenient public transport; a garden, patio, roof terrace or balcony; sea or hill views; near a field or golf course; conservatory; double glazing; and number of bedrooms, bathrooms, garage and parking spaces. People who have paid out to improve their homes will pay more in council tax for the privilege.

In what has been described as a “snoopers’ charter”, inspectors will also use satellite technology, digital cameras and even spy planes to help them to assess the value of properties.

“Ministers have given their express authority for every home in the country to be sized up, and every home improvement or sign of a nice neighbourhood to be photographed, catalogued and taxed by Gordon Brown’s inspectors,” Spelman said.

“I fear council tax bills will rise purely for living in a quiet road, being near a bus stop or having a parking space. The Conservatives would scrap these revaluation plans and abolish the tax inspectors’ rights of entry.” COUNCIL tax bands are based on house prices in 1991, back when the Tories were hatching it. The revaluation that Lyons will recommend would mean that they are updated to reflect current market values.

Pam Guest is typical of those who would be hit hardest. The 69-year-old has lived in Stoke Newington, north London, since 1939 in a three-bedroom Victorian terraced house. She bought her home in 1973 for £3,000; now that the property is worth up to £475,000 she “dreads” the council tax revaluation.

“During the 1990s when the house was first valued the area was incredibly rundown. But then [nearby] Canonbury started to become very expensive and when people could not afford Canonbury they moved to Stoke Newington,” she said.

Stoke Newington has become popular with middle-class families thanks to the “urban village” atmosphere with small shops and cafes thriving in the high street. It is because house values there have grown disproportionately fast that any revaluation would take a heavy toll.

As house prices recovered after the 1991 recession, many rundown suburban areas across Britain started to attract professionals priced out of more central areas in a similar way. During 1996, some of the Victorian homes in Stoke Newington enjoyed £100,000 rises.

“I dread to think about the revaluation. I will have to move out or get a lodger,” said Guest.

“The council tax bill arrived today and it is £1,591.74. I get a discount but it is still £1,193.80 for a band E house. I live in fear of them rebanding. I don’t even have central heating or a modern kitchen.”

In the 16 years since the first council tax valuation, average house prices in Britain have trebled in value. In theory, if all house values had climbed in line with one another nobody would pay more. But because there have been marked regional and local variations, any revaluation would be certain to produce many losers as well as winners.

“The snag, as politicians know all too well, is that the winners from tax reform take their gains for granted whereas the losers cry foul,” noted one commentator last week.

A new band at the top, with rates three times higher than those at the bottom, would add to the pain: “This would particularly upset homeowners in London and the southeast, where property values are especially high.”

Blair sensed the obvious political danger early on and has already delayed the revaluation once. For similar reasons, Gordon Brown is likely to postpone any action until after the next general election.

“I think the government is likely to say, ‘Thank you, Michael Lyons — we’ll get back to you’,” said Chris Leslie, a former Labour minister who is now director of the New Local Government Network.

Treasury sources added that the Lyons review would present a “series of options, not a programme for immediate action”. This is almost certainly code for: “We’re going to kick it into the long grass.”

What are the other options and how might they work?

ONE option is to follow Northern Ireland, where a new “property tax” comes into effect next month. Under this system all households will pay an annual tax currently set at 0.63 per cent of their property’s value. This would mean an annual bill of £630 on a £100,000 property, rising to a potential £6,300 for a £1m house, although the maximum bills are expected to be capped.

This system, while more transparent, would not avoid increased bills for many if applied in the rest of the UK and, crucially, it does not avoid the need for all properties to be inspected carefully to assess their value.

Residents in Northern Ireland are already complaining of spotter planes circling their homes to take photographs and of inspectors knocking on doors with extensive and intrusive questionnaires. Residents face fines of £1,000 and then £200 for every day afterwards if they do not cooperate with the inspectors.

Others — notably the Liberal Democrats — are pushing for a local income tax. This would be more “progressive” as it would be based on earnings, not property values. Pensioners such as Guest, who have large homes but small incomes, would do much better out of it. It would also negate the need for snooping property inspectors.

However, a local income tax would create a range of new and different problems. The money raised in some wealthy boroughs would be much greater than in poor ones where funds would be needed most.

There would also be marked regional variations with the high earners of the south again hit hardest. Boundaries could be redrawn and a system of subsidies introduced but again this would involve huge upheaval and complaint.

Local authority chiefs, meanwhile, are worried that the political fuss over council tax bills will obscure Lyons’s other recommendations, which are intended to reform radically the relationship between White-hall and town halls.

Lord Bruce-Lockhart, chairman of the Local Government Association, said: “After years of work, it would be ludicrous if council tax banding were the biggest thing to come of this report. I told Michael, when we met for the final time last week, that we are not interested in cosmetic changes like banding. Nothing less than radical reform of local government finance is what we want to see.”

For politicians, the word “radical” when combined with “local taxation” spells danger. Thatcher had her poll tax riots. Brown will be desperate to avoid a council tax disaster.