Ministers must slash VAT rates and give residents a greater say over local retail sectors, if their plan to localise business rates is to reward town halls financially, Opposition MPs have warned.

Labour has attacked what it perceives as an absence of effective measures designed to kick-start local economic growth since the DCLG announced its intention to localise business rates.

Opposition MPs fear the decision to allow councils to retain a higher proportion of locally-raised business rates could be undermined by a continuation of the stymied local economic growth revealed last week.

Retail employment figures, published on 28 July, revealed there were 3,100 fewer jobs in the sector at the end of the last quarter.

Other data published earlier last week showed an 8% increase in the number of firms entering administration, while the Office for National Statistics reported that overall economic growth across the UK was lower than expected – just 0.2% in the second quarter of 2011.

Jack Dromey, Labour’s shadow local government minister, said: ‘These figures show the damage the Government is doing on our high street. It should change course – it needs to support growth and jobs by backing Labour’s four-point action plan to revive the high street.’

Labour has urged ministers to temporarily reduce VAT from 20% back to 17.5%; give local residents a greater say over retail plans for their high streets; create a ‘competition test’ within the planning system to boost smaller businesses; and to support local community and cultural bodies to use empty shops to reinvigorate high streets.

A senior Labour source last week told The MJ: ‘These measures would kick-start growth on our high streets – increasing business activity – and increase councils’ business rate income following the DCLG’s decision to localise the system. But the continued failure to kick-start growth risks leaving councils out of pocket.’

The Treasury rejects assertions that it has not created sufficient incentives to stimulate economic growth, despite the ONS figures. Chancellor, George Osborne, last week said his policies had stabilised the UK economy during a potentially-volatile period, and published an update report on his Plan for growth, which claimed ‘significant’ progress had been made.

The DCLG last week announced further measures to reward growth locally, through the creation of four further ‘enterprise zones’. Ministers claimed the new zones – in Birmingham, Bristol, Leeds and Sheffield – could create 24,000 new jobs by 2015.

Like existing enterprise zones, the new areas will benefit from discounts on business rates, lower levels of planning control, and the potential to use enhanced capital allowances.

Ten further enterprise zones are due to be announced shortly. Prime minister, David Cameron, said he was ‘getting behind’ enterprise zones as a means of stimulating growth.

‘It is our dynamic businesses, large and small, which are on the frontline of our economic recovery, and we are committed to do all that we can to ensure they can thrive,’ he said.