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An independent report, commissioned by Manchester, Birmingham and Westminster city councils, has called on the government to introduce a new system of local authority finance that would allow councils to retain a greater share of business rates and give them a "genuine incentive" to drive growth.

The City Finance Commission report, chaired by property developer Sir Stuart Lipton, said the government should "break out of its control zone" to give councils a much greater say over how they are funded.

The report added that reforming local authority finance would free councils from their reliance on government grants and encourage them to become self-sufficient. Councils would also be allowed to keep a greater share of the money to encourage them to attract businesses into their area and regenerate local economies.

At present local authorities collect £21.6bn worth of rates, which are then sent to central government and redistributed around the country.

The commission’s report also calls for Whitehall to devolve budgets to local authorities and introduce single ‘Area Growth Budgets’ creating single local pots for delivering services such as employment, adult education, health and housing.

Mike Whitby, leader of Birmingham City Council, said: "I have consistently made the case to government that Birmingham is a key driver of the UK growth agenda, and there is formidable mutual benefit if we receive greater powers to deliver growth. I am delighted that this independent report confirms my views.

"The council is already working hard to stimulate growth, with key projects such as the Big City Plan and the new Library of Birmingham at the forefront, and we have a long track record of working with businesses both on individual projects and in the Greater Birmingham and Solihull Local Enterprise Partnership."

"The report’s proposals could really empower us to do much considerably more. I hope the government will look positively at the report’s recommendations, and will work with me to make them happen in Birmingham."

The report also recommends that cities should be able to apply to be part of a ‘devolution pilot’ to give councils greater freedoms to develop policies that support economic growth.

It added that the government should grant councils the power to borrow against future revenues such as business rates to invest in capital projects such as transport links, regeneration or new broadband infrastructure.