THE North-East will lose many millions of pounds a year under the most radical shake-up of town hall finances for 20 years, a council leader warned yesterday.

Simon Henig, leader of Durham County Council, raised the alarm over plans for authorities to retain future business rate growth to spend on local services – instead of handing cash to the Treasury, for redistribution from a central fund.

The Northern Echo: Table showing gains and losses.

North-East authorities received a top-up of £204m from the existing system in the present financial year – including £100m given to County Durham, from richer areas.

In contrast, North Yorkshire authorities – including Harrogate, Hambleton and York – were losers to the tune of £155m, figures show.

The shake-up will not affect existing allocations – the figures in 2012-13 will be used to fix a new baseline, from April 2013 – but rates from new businesses will then be retained by councils.

Communities Secretary Eric Pickles said: “We will end councils’ disparaging dependence on government handouts, finally start rewarding economic growth and support local firms and new jobs.”

But Mr Henig said: “It is easy for the likes of Westminster Council, in London, to throw up a new shopping centre or a financial hub and keep that growth in business rates. It will probably get more growth from that one building than the North-East can manage in one year, particularly in rural and deprived areas.”

Furthermore, councils will be free to offer discounts – to attract more companies – if they can fund those discounts themselves.

It is feared that option will be attractive to some wealthy councils in the South – but impossible for the likes of Durham, hit by massive cuts in government grant.

Last night, Mr Pickles’ department hit back, releasing figures which, it said, showed the North-East would be a winner under the new system.

It said the average annual increase in business rates, between 2005 and 2010, was 3.6 per cent, but the North-East’s receipts grew by five per cent a year – and County Durham’s by 5.6 per cent.

In a statement, Mr Pickles said the system of “tariffs and top up grants” would ensure no local authority lost out – but also that this would only be true “at the outset”.

After 2013, areas that attract more new businesses would keep all the gains until the tariffs and top-ups are reset, perhaps after ten years.

There will, however, be a levy on “disproportionate gains”, which would be handed to councils that suffered “significant, unforeseen falls in business rates income”.