The creation of a West Midland or “Greater Birmingham” combined authority has moved a step closer as Labour leader Ed Miliband announces plans to let combined authorities keep a share of local business rates.

New business rate income resulting from economic growth will be kept by local councils under a Labour government, rather than simply handed to the Treasury as usually happens now.

But the policy will only apply to combined authorities, such as the Greater Manchester authority or the combined authorities created earlier this year in the North East, West Yorkshire, South Yorkshire and Merseyside.

The West Midlands will miss out on the money unless councils in the region can agree to form a new body.

Birmingham City Council has begun talks with neighbouring councils including in Solihull and the Black Country about creating a combined authority to take charge of issues such as economic development, but the talks are at a very early stage and there has been no agreement so far about whether to go ahead.

Councils nationwide currently receive £22bn a year in business rates.

Each authority’s current contribution to the Treasury will remain as it is, adjusted each year for inflation, but councils which collect higher sums in the future - suggesting new firms have been founded or moved in to the areas - will keep the difference. There will be no extra cost to employers.

Greater Birmingham road sign
Greater Birmingham will be allowed to keep a share of business rates - but not Birmingham on its own

Other Labour proposals include  stripping Whitehall departments of £30bn currently spent on housing, transport, business support, employment and adult skills, and distributing the money over five years to councils and local enterprise partnerships, the economic development agencies set up by the Government which are led by councillors and business leaders.

The £6 billion-a-year fund would replace the Government’s local growth fund, worth £2 billion a year, which is due to begin distributing money next year.

Labour also plans to reform England’s 39 Local Enterprise Partnerships to reduce their number while giving them responsibility for skills and the Work Programme, the Government’s scheme to help unemployed people into work.

Mr Miliband is set to say: “If we are to create the wealth of the future and solve the cost of living crisis, we must help create high-quality private-sector jobs not just in one part of Britain, but in every part of Britain."

Announcing the new policy in Leeds, he will add: “The next Labour Government will ensure city and county regions, like this powerhouse economy in Leeds, get control of business rates revenue.

“So that any extra money raised here thanks to the efforts of you and everyone in this great city can be invested here.”

The proposals follow a review of economic policy by Labour peer Lord Adonis.

Labour is still considering whether to adopt other policies recommended by Lord Adonis, which include establishing at least 100 new University Technical Colleges, which focus on technical and scientific skills.

Lord Adonis also backs the idea of “city region” or conurbation mayors for combined authorities, but only once the authorities are up and running successfully.