CLG secretary Eric Pickles today announced ‘the greatest shake-up of local finance in a generation’ when he confirmed the grant settlement for English local authorities for 2013/14.

Claiming that councils’ spending power, the combination of grant and other income, would be reduced ‘overall’ by 1.7% and no more than 8.8% he said the reduction would be matched by the retention of £11bn in business rates. He said that 70% of local authority income would be raised locally compared to the current 50%. Mr Pickles added that the average grant reduction would be ‘less than 3%’ in the poorest areas and 8.8% in the wealthiest.

From next April, councils will keep half of their business rate allocation as well as grant and the grant system has been changed to reflect this.new revenue to ensure it meets the Chancellor’s overall spending plans. Longer term the aim is for councils to increase their business rate revenue by attracting new business. During the current Spending Review English councils have cut £5bn from their budgets.

Next year councils will also receive £650m in New Homes Bonus, while Mr Pickles said councils could use the revenue from asset sales to fund equal pay claims from female staff.

Total council spending is £114 billion, a quarter of all public spending, and while he maintained that satisfaction in council services has increased Mr Pickles claimed councils could still save back office costs through more shared services.

The settlement follows an open letter to Eric Pickles from the leaders of England’s core cities warning of ‘a looming financial crisis’ with non statutory services at risk.

The leaders complain that spending cuts so far have been ‘unfairly distributed’ with the most deprived parts of the country facing the largest funding falls. They add that local government has not only provided the largest share of Whitehall spending cuts but faces a further 2% cut from 2014/2015 announced in the Autumn Statement.

Birmingham City says it has a spending shortfall of £600m between 2011 and 2017, Newcastle faces a £90m gap to 2016 and Manchester City £8om.

But Mr Pickles in his speech said Newcastle ‘spending power per household’ was at £2,522 higher than that of Wokingham.