Councils will be allowed to keep 100% of local taxes from 2020, including £26bn of revenue from business rates, under new plans announced today.

Chancellor George Osborne has outlined his 'devolution revolution' measures, which will allow local government to use local taxes to fund frontline services.

Local authorities will also be allowed to cut business rates to help promote growth in their local area. Those agreeing to have an elected mayor, will also be able to increases rates to fund local infrastructure projects.

The Local Government Association (LGA) welcomed the announcement, saying it would give councils more freedom to set local discounts.

Cllr Gary Porter, LGA chairman, said: 'Councils and businesses both agree that business rates should be a local tax set by local areas. It is right that all of the money which a business pays is retained by local government and this will be a vital boost to investment in infrastructure and public services.

'While this is good news for councils and businesses, local authorities will face almost £10bn of cost pressures by 2020 so we will now seek to work with government about how this proposal can be introduced more quickly.

'We would expect measures to ensure local areas with less ability to generate business rates income do not suffer as a result of these changes and all councils are also given leeway to vary business rates up as well as down.'

The Local Government Information Unit (LGiU) said the announcement would mean greater independence for councils, but warned it must generate enough extra revenue to cover new responsibilities.

Jonathan Carr-West, chief executive at the LGiU said: 'The chancellor's devolution revolution must be a locally-led process. We don't want to leave councils out in the cold because of uncertainty. This process will need to be managed in a way that is fair and that gives local authorities and local people the maximum possible control over the economic destiny of their areas.

'The key question here is not how much money will these measures raise but will it be enough to cover any new responsibilities. As such, we look forward to seeing the detail of the chancellor's plan in the Autumn Spending Review in November.'