A MINISTER clashed with the region’s MPs yesterday, when he insisted a controversial shake-up of town hall finances would leave the North-East better off.

Labour MPs staged a Commons debate to protest that councils would be tens of millions of pounds out of pocket, on top of deep cuts to services already being forced through by Whitehall.

The overhaul will allow local authorities to retain future business rate growth to spend on local services, instead of handing cash to the Treasury for redistribution to poorer areas from a central pot.

The region received a “top up” of £204m from the existing system in the current financial year, official figures show – including £100m handed to County Durham, from richer areas.

In stark contrast, richer North Yorkshire authorities, including Harrogate, Hambleton and York, ere “losers” to the tune of £155m.

Leading the debate, Julie Elliott (Lab, Sunderland Central), told ministers the changes would be “unfair and unjust” and would benefit affluent areas.

Pat Glass (Lab, North-West Durham) warned of the hollowing out of US cities, such as New Orleans and Detroit, saying: “What the Government proposes would create derelict cities in the North.”

And Phil Wilson (Lab, Sedgefield) attacked the way retail space will generate high business rates, adding: “In the future, local authorities might not pursue major manufacturers to come to the area, as they have done in the case of Hitachi.”

But Andrew Stunell, the local government minister, came out fighting, insisting the Labour MPs simply did not understand what was being proposed.

He said the shake-up would not touch existing allocations – the figures in 2012-13 will be used to fix a new baseline, from April 2013 – which meant only rates from new businesses would be retained by councils.

Furthermore, business rate income had grown by 5.1 per cent in the North-East in the past five years, slightly higher than the national average of five per cent.

Mr Stunell, a Liberal Democrat, said: “This is not a zerosum reform.

“There is every prospect that the North-East will do well out of this system of having an increasing flow of business rates.

“I thought that there was general agreement that this country has the most centralised and complex local government finance system in the world, with the possible exception of Malta.

“The system has clearly passed its sell-by date. It is impenetrable, even to chief finance officers of local authorities, not to mention voters on the street.”

After 2013, areas that attract more new businesses will retain all those gains until a system of “tariffs and top-ups” is reset, perhaps after ten years.

There will, however, be a levy on “disproportionate gains”, which would be handed to councils that suffered “significant unforeseen falls in business rates income”.