The North-East is still paying the highest levels of council tax in England, despite London's equivalent bills rising by 18.2 per cent this year.

The average band D household in the North-East is paying £1,161 this year - an increase of 8.7 per cent, while the capital's average bill is still £100 a year less.

But according to the Association of London Government (ALG), that could change by the end of the decade, once valuations catch up with rising property prices and subsidies shrink.

Teesside MP Ashok Kumar welcomed the possibility of London council tax catching up with the rest of the country and called for the money to be distributed around the regions.

"It would be a transfer of wealth and is good news. There has been over-heating of the economy in the South- East and I will not be shedding any tears if they have to pay more.

"The North-East pays too high levels of council tax and anything that helps our economy would be extremely welcome."

The ALG report warns: "It is expected that London's higher tax base could lead to a significant reduction in grant to London authorities. London could lose up to £1bn in revenue support grant."

A revaluation of properties to assess council tax levels is due to take place in 2005, with the new bands coming in on April 1, 2007.