A "TOP-up tax" on local businesses could provide the missing funding for the £140m Tees Valley Metro system, the Government signalled yesterday.

A shake-up of local authority powers paved the way for town halls to levy a supplementary business rate, to raise tens of millions of pounds for key projects.

The idea is aimed specifically at accelerating schemes such as the 30-year-old dream of a Metro-style light rail scheme across Teesside.

Last November, Tees Valley Regeneration (TVR) submitted its business case for the scheme to the Department for Transport (DfT), with the hope of getting approval next year.

Trams running every 15 minutes would link Saltburn, east Cleveland, to Darlington and serve sites including Durham Tees Valley Airport.

Future plans could result in extensions to Hartlepool and Nunthorpe, in Middlesbrough.

But the DfT has said it would require a local contribution of about ten per cent - about £15m - either from councils or other agencies.

The supplementary business rate - applied to the rateable value of business properties - would raise tens of millions of pounds from companies in an area such as Tees Valley.

The levy could, in turn, be used to fund loans, permitting councils to borrow up to seven times as much as the annual income from the charge.

But many firms are likely to oppose the move, fearing a return to the hefty rates of the Eighties.

As a result, Local Government Minister John Healey suggested the power could only be used after consultation with businesses on the projects it would fund.

Mr Healey said: "We are considering the challenge of reliable funding streams that will allow local authorities to generate the upfront investment they require to develop their infrastructure and support growth."

No decision would be taken until later in the year, once a consultation with local authorities and business leaders has been completed.

At present, local business taxes are determined in Whitehall through the "uniform business rate", with increases pegged, by law, to inflation.

But in March, a study commissioned by Gordon Brown recommended a supplementary rate limited to 4p in the pound.

Joe Docherty, TVR's chief executive, said he needed to see more details of the proposal, but added: "I welcome any development that allows greater investment in local transport."

The "review of sub-national economic development and regeneration" will feed into October's comprehensive spending review, setting out spending priorities for the next three years.

Unelected regional assemblies in the North-East and Yorkshire will be scrapped, probably by 2010, with their powers over planning, housing and regeneration handed to the regional development agencies and with closer scrutiny by town halls and MPs.

Commenting on the review, Mick Henry, chairman of the Association of North-East Councils said: "This announcement underlines a commitment from central government to a new deal for devolution, which places local councils at the heart of decision- making on issues which matter to citizens and communities in localities across the region.

"We support and welcome a new relationship between central Government and local councils, which will enable and empower us to demonstrate our leadership role, underpinned by a strong democratic accountability and legitimacy.