Councils could keep up to 50% of business rates, say Government

The plans were unveiled as part of the local growth reforms contained in the Local Government Finance Bill. In addition councils would get to keep 100% of business rates generated from new renewable energy projects.

The local growth reforms are part of the Local Government Finance Bill that will have its third reading in the House of Commons next week. The Bill seeks to create a new incentive for local government across England to support growth by directly linking a council's financial revenue to the decisions they take to back local firms and local jobs.

"The current flawed system of government handouts to local authorities encourages a begging bowl mentality, with each council vying to be more deprived than its neighbour," said Pickles.

"Our reforms will allow councils to stand tall, and reward them for supporting local jobs and local firms. All councils, including the least prosperous, have the opportunity to gain from this system," he added.

Last year the Government collected £19 billion in business rates and redistributed the collected funds by allowing councils to bid for a share. This is done using a "complex process" known as "Formula Grant", the Government said.

Under the proposals, the "local share" of business rates would be retained in full by councils and would be set at 50% for a seven year period. The remainder of business rates, the "full central share" would be returned to local government in grants, as with the current system.

Departmental analysis shows that the projected economic benefits of the new business rate retention scheme could add an additional £10 billion to national Gross Domestic Product over the next seven years, the Government said.

The new system would be fair and equitable and business rate growth would be shared evenly between central and local government, the Government said. A centrally-run safety net fund would provide support should a council's income drop below a set baseline, protecting areas which suffer a downturn.

"These new laws and reforms deliver an opportunity for a £10bn boost to the wider economy, and more business rate revenues for councils," said Pickles. "Councils will have a strong incentive to go for growth, generating more money to support frontline services, help pay off the deficit and still protect vulnerable communities."