DEVOLUTION will widen the gap between rich and poor areas of England if it goes too far, Lord Heseltine has warned – backing North-East council chiefs.

The Conservative peer – the architect of the Coalition’s devolution drive on spending - spoke out against growing calls for areas to set their own tax rates as well.

Lord Heseltine said it was an issue he had “wrestled with for years”, only to conclude that poorer areas would inevitably lose out and be left with worse services.

And he said: “The moment you start backing the winning, richer areas, by giving them more control, the problem is how you get the money to provide the equalisation of services throughout the more impoverished areas.

“I don’t know the answer to that question and, until I do, I’m a sceptic – in this relatively small island – about this idea of varying tax rates.”

The comments come after North-East councils led criticism of a shake-up that allows councils to retain some business rates to spend on local services – instead of handing cash to the Treasury, for redistribution from a central pot.

Ministers said they were ending town halls’ “disparaging dependence on government handouts” and that North-East authorities would attract new investment to recoup any losses.

But, in 2011-12, before the changes, North-East authorities received a top-up of £204m from richer areas - including £100m given to County Durham.

In contrast, North Yorkshire authorities – including Harrogate, Hambleton and York – were losers from paying £155m into the system.

Councils are now also free to offer rate cuts – to attract more companies – if they can fund those discounts themselves, an option more attractive to wealthier councils.

And the Conservative leader of North Yorkshire County Council argued for areas to retain all of their business rates, as well as stamp duty from house sales and capital gains on property development.

Speaking at Westminster, Lord Heseltine revealed he had sought assurances from Eric Pickles, the Local Government Secretary, that poorer areas would not lose out from receiving less in business rates.

And, asked about the calls to go further, he replied: “The areas that argue for it are always the rich ones.

“If I was a rich area, I would argue for it - but, the fact is that someone has to pay for the less rich ones.”

The peer said there was a public “assumption” that taxes will provide equal services across the country, in health, education and local government.

And he added: “My advice to politicians is don’t get involved. There is no way of achieving the panacea associated with these ideas – there are more important things to do.”

North Yorkshire is a member of the 36-strong County Councils Network (CCN), which has put forward a radical submission to MPs, demanding a “more ambitious approach”.