Birmingham City Council is to receive an extra £15.4 million from the Government as a reward for providing good services.
These include increasing school standards and boosting the GCSE pass-rate. The authority has also worked with police to reduce domestic burglary rates.
Last summer saw 51.2 per cent of pupils pass the benchmark five or more GCSEs graded between A and C - an increase of 1.8 per cent on the previous year. It meant the city rose nine places to be ranked 71 out of England's 150 local education authorities.
The Government grant reflects Birmingham's position as the major city with the best exam results in the country.
Ministers also announced plans yesterday to cut red tape affecting three Midland local authorities.
Telford & Wrekin, Coventry and Wolverhampton councils will have more freedom to decide how to spend the grants they receive from the Treasury.
A total of 15 councils are to receive reward grants, totalling more than £93 million, from Government over the next two years.
Nick Raynsford, the Minister for Local Government, said: "I am very pleased to be able to announce today the first reward grants under the scheme, of which Birmingham has £15.4 million."
He added: "With the reward grant announced today, Birmingham will be able to build on these achievements and provide even better services for their community."
Charles Clarke, the Home Secretary, said allowing councils greater freedom would help them work with community groups and the voluntary sector.
He said: "This will enable communities to develop more local solutions to local problems. "In time, as with our reforms for the police, this will provide greater transparency and give citizens a greater say in how services are delivered."
The Government also revealed yesterday that the West Midlands will receive £378.9 million over two years for housing, from £5.5 billion being spent nationally.
Housing Minister Keith Hill highlighted Midland schemes already benefiting from Government funding. The West Midlands has two schemes designed to increase demand for property, in North Staffordshire and North Birmingham.
These areas are running initiatives aimed at reversing social and economic decline that has driven residents away.
In Birmingham, housing association Optima is transforming a former run down city-centre estate of 2,800 homes into a successful mixed-tenure development.
The scheme was name Regeneration Scheme of the Year at the national Housing Excellence Awards last year.
Meanwhile, in Castle Vale, the Housing Action Trust is at the end of a very successful programme to improve the homes and environment for residents on an estate of just under 4,000 homes.
In Coventry, the Whitefriars Housing Group will ensure that, by 2006, a total of 19,000 ex-council homes will meet the Decent Homes standard, which will mean they are warm, weatherproof and all have reasonably- modern facilities.