Another London borough is bracing residents for huge council tax hikes following sweeping cuts to its funding by central government.

Hammersmith and Fulham council has warned it is losing 40% of its £222million annual budget under Labour’s “Fair Funding” review.

The town hall, along with Westminster, Kensington and Chelsea, Wandsworth, City of London and Windsor and Maidenhead, have been given the power to raise bills above the 5% cap next year to balance their budgets in the wake of the cuts.

Cabinet member for finance, Rowan Ree, said: “The scale of the government funding reduction over the next four years means our efficiency savings alone will not be enough to close this budget gap.”

Ministers have argued that local authorities with “historically low” council tax levels will have the cash they receive from Whitehall slashed, forcing them to bring bills into line with national averages to make up shortfalls.

Hammersmith and Fulham is the only Labour-led authority impacted by the government’s plans and leaders said they have kept bills low with “ruthless” cost cutting in a borough that has significant pockets of deprivation.

A Band D household currently pays £1519 annually, including the £510.51 City Hall surcharge.

A council source told the Standard: “It's dire, we're in an impossible situation of either massively hiking people's bills or cutting services to the bone.”

In a letter to residents on Thursday, Mr Ree said: “Our 'ruthless financial efficiency' programme has allowed us to redeploy savings to give you the third lowest council tax in England as well as unique services such as our dedicated Law Enforcement Team, the most CCTV coverage per person in Britain and to pioneer the introduction of free primary school breakfasts.

“We have been able to keep council tax low – even compared to our neighbours in Kensington and Chelsea, Hounslow and Ealing – by ruthlessly cutting costs while providing more for less.

“These outcomes for our residents were not because the previous Government formula was overly generous.

“Since 2010, Hammersmith and Fulham's grant from government had already been cut by 54% in real terms.

“Meanwhile, the government's own deprivation figures list our borough as the 120th most deprived of England's 296 local authorities.”

Wandsworth has already proposed a 94% increase. The borough currently has the lowest bills in the country, with residents in benchmark Band D homes paying £1,020-a-year including the City Hall surcharge.

From April 2027, this is expected to be almost £2,000.

Meanwhile, Westminster has warned bills will need to rise 200% unless there are significant cuts to services.

Hammersmith and Fulham council leader Stephen Cowan told a panel at Labour Party Conference that officers had been tasked with finding savings, including where AI could be used to streamline services.

But is understood that four times the amount of savings found so far would need to be made to prevent council tax skyrocketing.

The council has to make a decision on council tax increases by December.

Hammersmith and Fulham is set to launch a consultation asking residents about council tax residents and potential cuts to services.

Mr Ree added: “The scale of the Government funding reduction over the next four years means our efficiency savings alone will not be enough to close this budget gap. As a result, we must look at all our options.

“I am determined Hammersmith and Fulham remains Britain's best value council.

“In Hammersmith and Fulham, people have services they simply wouldn't get if they lived elsewhere – from protecting residents during the cost-of-living crisis, to investing in young people and funding vital youth services and taking extra measures to cut crime and keep people safe.

“We have always strived to do things with residents, not to them.”

“We will soon ask for the views of all council taxpayers.”