Government in U-turn over council tax revaluation plan

The cancellation of the revaluation of 22 million homes will come as a relief to home owners who feared they would be presented with a massive rise in their bills. Ministers feared a backlash in the South-east, where house prices have risen sharply since the last time property values were assessed 14 years ago.

However, it raised suspicions last night that it was being shelved to avoid a crisis for Mr Brown when he takes over from Tony Blair.

The Prime Minister accused the Tories at the last election of "an act of desperate opportunism" when they gave a pledge to scrap the revaluation.

The Chancellor and John Prescott, the Deputy Prime Minister, and his deputy, David Miliband, agreed that it would be a mistake to go-ahead with the controversial revaluation - the first for 15 years - if the council tax system was changed. The review by Sir Michael Lyons is due to deliver proposed changes to the council tax by the end of the year.

A senior government source said last night: "With the Lyons review about to report, it would be completely dysfunctional to have a revaluation based on the old system of council tax.

"It makes perfect economic sense to have a revaluation since the last time it was carried out was 15 years ago, but in practical terms, it doesn't make any sense at all.''

There were fears that council tax would soar as a result of the revaluation in 2007, the year when Mr Brown is expected to take over from Mr Blair. Those fears were fuelled by the revaluation in Wales that led to a sharp rise in council tax bills, by an average 9 per cent. It could have added an estimated £270 a year to council tax bills in four out of five towns.

Liberal Democrats, who would replace council tax with local income tax, described the revaluation as a "ticking timebomb" at the election. Sarah Teather, the Liberal Democrat spokesman, said last night: "Council tax is in a desperate mess and cancelling revaluation does nothing to change that.

"Revaluation or no revaluation, council tax is Britain's most unfair tax. It's time to introduce a fair local income tax based on the ability to pay."

However, the Lyons review of the council tax could still see many council tax bills rise. The Government ordered the review by the Lyons committee after being shocked by the anger of pensioners who protested at soaring council tax bills in the West Country.

The review is expected to propose a widening of the council tax bands to take account of rising property prices, and reforms to allow the ability to pay to be taken into account. The aim will be to ease the burden for pensioners, who face high council tax bills if they live in the family home after their children have left.

Moving an average Band D home up to Band E could mean a tax increase of 22 per cent, from £1,214 to £1,484 - a rise of £270 a year. Ministers have insisted that it will be "cost neutral" and will not increase the overall tax burden, but home-owners in the top bands could still see substantial rises in their bills. That was clearly judged to be politically unacceptable by Mr Brown, who appears to be clearing the decks for his premiership in the run-up to the next election.