UK's Osborne, pushing devolution, to give towns more tax powers

By Kylie MacLellan MANCHESTER, England (Reuters) - British Chancellor George Osborne said on Monday he wants to transfer more power to English town halls as part of a deepening devolution campaign that could help his Conservative Party make headway in opposition Labour Party strongholds. Osborne said he was making "the biggest transfer of power to our local government in living memory" by allowing local authorities keep all revenues from a tax on businesses and letting big cities raise more money for infrastructure spending. Osborne has already sought to hand over more powers to cities and towns, especially in northern England which has failed to achieve the same job growth and higher incomes seen in London and the southeast over decades. Such cities represent a traditional power base for the opposition Labour Party, but Osborne -- who represents a constituency near the northern city of Manchester -- has built a closer relationship with them. A senior member of the Labour Party said however that Osborne's plan represented a step back for poorer areas of Britain which risked being left behind while other areas that were more attractive for business earned more revenue. "Big contradiction at heart of Osborne speech," Labour's would-be interior minister Andy Burnham said on Twitter. "Says wants to close North-South divide. But then announces taxation reform that will widen it." The change would allow 26 billion pounds raised in business rates to stay in the hands of local councils each year by 2020, Osborne said in a speech setting out his party's claim to Britain's political centre ground. Currently, 50 percent of revenues from business rates are sent to the finance ministry which sends money back as grants, which vary depending on social deprivation and other factors. "In my view, proud cities and counties should not be forced to come to national government with a begging bowl," Osborne told the annual conference of the Conservative Party, led by Prime Minister David Cameron, which won a decisive victory in a national election in May. The Conservatives under Margaret Thatcher stripped local authorities of their powers over business tax in 1990 due to mistrust of Labour-dominated authorities. EMPLOYERS' FEARS Under Osborne's plan, local authorities may cut business rates charged to companies in their areas, allowing them to try to attract new investment with lower rates. A core grant from central government would be phased out and local governments would take on new responsibilities, he said. A safety net policy, which protects local areas against big drops in business rates, would be maintained. Osborne also said big cities with elected mayors such as London and Manchester would be able raise rates to pay for infrastructure, if they had support from local businesses. Employers said they were worried the changes could lead to higher taxes for companies and the British Chambers of Commerce said it was "highly questionable" for Osborne to announce the changes without consultation. "Businesses will want assurances that greater local control over business rates does not translate to them becoming a milch cow for local government," BCC Director General John Longworth, said. (Writing by William Schomberg and David Milliken in London; editing by Gareth Jones and Richard Balmforth)