Labour plans to divert money from rich areas to most deprived towns

Ministers have pledged to redirect cash from wealthy areas to England's most deprived towns and cities, reversing a trend established during a decade of austerity in a major shake-up of local government funding.

- Patrick Butler, Kiran Stacey

The government also said it would consider requests "on a case by case basis" from cash-strapped councils which wanted to balance their books by raising council tax above the current threshold of 5% for upper-tier authorities and 3% for districts.

Up to now, only councils that have declared formal effective bankruptcy such as Croydon and Thurrock have been allowed to charge council tax above cap levels. Last year a request by Medway and Somerset councils to charge 10% was refused.

A new £600m "recovery" grant will be targeted at England's most deprived towns and cities - mainly in the north and Midlands - alongside longer-term "fair funding" plans intended to rebalance council funding away from the more affluent south-east.

The shake-up, announced yesterday, was billed as an attempt to "fix the foundations" of local government and make funding more effective by ensuring councils with high needs in adult social care and child protection get a fairer share of funds.