London Councils has published the first detailed model for how the capital's boroughs could pool business rates in a way that encouraged economic growth while protecting vital frontline services.

The model takes into account ‘asymmetric growth' – whereby some boroughs with vibrant economic potential, such as Westminster, could see funding derived from business rates increase by around 10% more than deprived areas, such as Hackney.

Under the three-part arrangement involving a reward retention element and primary and secondary pools, the process for distributing £5.5bn rates collected annually in the capital would be simplified and made flexible, the policy body claims.

The business rate retention model, devised according to guidelines agreed by London Council's leaders committee, was developed in response to the government's announcement last year of a Local Government Resource Review to examine new ways of funding local authorities.

Under the model, the capital would, however, continue to share a proportion of its business rates with the rest of the country to ensure fairness across England, and in acknowledgment of London's vital role in powering the national economy.

London Councils director of fair funding Hugh Grover said the model would incentivise ‘local authorities to individually grow their business rates while still ensuring that London as a whole benefits'.