A SHAKE-UP could strip a further £22m a year from the North-East’s largest council, it emerged last night – on top of existing cuts to budgets.

Councils are to be allowed to retain more of the business rates they collect.

On the face of it this should benefit local authorities – but there is a sting in the tale for councils in less affluent areas.

Traditionally, business rates handed to the Treasury have been redistributed to councils in poorer areas.

Letting richer areas keep more money means authorities in the North-East could end up with millions less.

A “safety net” will kick in only if a council loses more than ten per cent of the amount it currently receives in Government grants.

Durham County Council received £223.3m in this financial year, which means up to £22m could be lost.

North-East council chiefs are vulnerable because they receive about £200m in topups every year, from the current system of redistribution.

The largest payout, in 2010-11, was to County Durham (£100.7m), followed by Middlesbrough (£32.8m), Redcar and Cleveland (£18.7m), Hartlepool (£18.5m) and Gateshead (£16.6m).

The new plans were criticised by Hilary Benn, Labour’s local government spokesman, who said: “Councils will face losing a lot of income before the Government’s safety net kicks in.

“This is very worrying, especially for councils that are heavily dependent on a big employer for business rate income.”

However, criticism also came from Sir Merrick Cockell, the Conservative chairman of the Local Government Association, who said the plan was risky.

He said: “In areas where the business rates base falls away sharply, the prospect of a further cut in funding of up to ten per cent before the ‘safety net’ protection becomes available represents a big risk to manage.

“We think the safety net should kick in much earlier, to ensure residents are not left exposed to cuts in council services at a time when their local economy is struggling.”

But the Department for Communities and Local Government has insisted the North-East can be among the winners from the shake-up, which it says will deliver a £10bn economic boost.

It said business rate income grew by 5.1 per cent in the region between 2005 and 2010, slightly higher than the national average of five per cent.

Ministers also insist the current system is impenetrable and centralised, offering no direct incentive to town halls to attract more businesses.

The safety net will be funded by a levy on councils that make gains, which means they will keep only 50 per cent of business rate growth, at least until 2020.

Its level – between 7.5 per cent and ten per cent – was revealed as the Local Government Finance Bill, which enacts the shake-up, cleared the Commons last night.