A flagship Labour authority has warned it may have to impose a 150% council tax rise on residents to maintain current services following central government cuts under a new funding settlement.

Hammersmith and Fulham council’s cabinet has concluded in a report due to be published on Monday that such a rise would cost Band D households an additional £29.11 a week in 2027/28.

The west London council has said it is losing more than half of its government grant under Labour’s “fair funding” review, which was introduced last year to redirect cash from affluent areas to places hit hardest by austerity.

Ministers have argued that the review will mean 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, along with Westminster, Kensington and Chelsea, Wandsworth, City of London, and Windsor and Maidenhead councils, have been given powers to raise bills above the 5% cap next year to balance its budget in the wake of cuts.

A household in Band D currently pays £1,519 annually, including the £510.51 City Hall surcharge, known as the Greater London Authority (GLA) precept.

In a document seen by the Guardian, the councillor Rowan Ree, serving as cabinet member for finance and reform, said the council was “facing the biggest financial challenge in living memory” under the new funding formula. The council received £150.5m in government funding in 2025/26, but this will be cut by more than half to £72.4m over the next four years.

“Various scenarios in this report show the deep extent that Hammersmith and Fulham council could be required to raise its element of the council tax (which excludes the GLA precept) during 2027/28,” he said.

Scenarios include:

• A 100% increase in the Hammersmith and Fulham council tax element – £2,018 a year at Band D – leaving a budget shortfall of £46.1m. “For a family in a Band D property that would mean an increase of £19.40 a week,” the document said.

• A 125% increase in the Hammersmith and Fulham council tax element – £2,270.25 a year at Band D – leaving a budget shortfall of £20.6m. For a family in a Band D property that would be an increase of £24.25 a week.

• A 150% increase in the Hammersmith and Fulham council tax element – £2,522.50 a year at Band D – which would broadly balance the budget on current assumptions. According to the document, a family in a Band D property would pay an increase of £29.11 a week.

Under rules set by Angela Rayner at the start of last year, cash was supposed to be redirected from affluent rural areas to urban councils hit hardest by austerity. Ministers said the changes put in place a fairer system that recognised the extra needs and weaker council tax-raising powers of councils in “left-behind” areas.

But Hammersmith and Fulham’s Labour councillors argue that they have kept bills low with “ruthless” cost cutting in a borough that has significant areas of deprivation. They claim that the council’s inclusive economic growth strategy, Upstream London, has attracted more than £6bn of investment into the borough and created 17,200 jobs.

London boroughs affected by the formula argue that flawed deprivation measures risk undermining the government’s aim of ensuring funding follows need.

In a letter to Andy Burnham in August, the Conservative leaders of Kensington and Chelsea, Westminster and Wandsworth councils urged a rethink of the proposals.

A spokesperson for the Ministry of Housing, Communities and Local Government said: “Local authorities decide the level of council tax they wish to set, but we are clear that in doing so they should put taxpayers first.

“We’ve made over £78bn available for council finances next year, with the majority of money unringfenced so local leaders can decide how best to spend on their local priorities.”