DCLG officials will effectively withdraw the system by which councils must seek Whitehall permission to use capital receipts to fund backdated equal pay claims.

The plan is set out in the DCLG's consultation paper on the proposed use of capital receipts – one of four local government consultations published on 25 July.

Over the past decade, councils have been invited to submit a bid to the DCLG for ‘capitalisation' permissions designed to help them ease the cost of backdated equal pay claims.

Traditionally, the Government has granted a number of councils permission to either sell capital assets or borrow against the value of those assets to fund such spending.

Such special permissions have been worth hundreds of millions of pounds annually.

But under communities secretary Eric Pickles' plan to help slash public borrowing and encourage the sale of council assets to fund service transformation, the DCLG recently revealed it would withdraw its capitalisation fund or bid process in 2015/16.

The consultation document read: ‘There will be no capitalisation fund in 2015/16.'

Officials have also outlined a gradual reduction in the level of funding for the capitalisation bid process from 2013/14.

Councils will instead be encouraged to make use of the amended Capital Finance Regulations, under which they can directly use capital receipts they raise to manage equal pay costs.

However, the DCLG's proposals for the future use of capital receipts indicate the department's clear preference for future capital asset sales to be used to fund the sort of service transformations ministers believe will deliver long-term public savings – such as the shift to greater shared services or IT-based services.

The consultation document asks councils to submit estimates for how much they need to raise through asset sales to fund service transformation so that Whitehall officials can set a sensible national limit.

One senior local government politician said: ‘Most of the consultation proposals are sensible.

‘The removal of capitalisation permissions in 2015/16 was always likely.

‘We have other ways to fund such payments now.'