Through the Local Government Finance Bill, Clegg said that he wanted to create incentives for council leaders to build their local economy.
Business rates will be returned to local authority control within two to three years, he said. He also promised that under the scheme no authority would receive less funding than it had done previously.
The government is to launch a consultation on the Local Government Finance Bill later this month with a view to introducing it in the autumn.
The pledges were welcomed by British Retail Consortium director general Stephen Robertson, although he urged Clegg to ensure that some control was maintained at a central level. "Local authorities should have a financial incentive to promote business growth in their areas," he said. "Allowing them to keep some of the extra business rates revenue generated by expansion is the way to do that. But letting them set business rates would damage growth and jobs." H