Twenty cities and their wider areas will be given the opportunity to bid for radical powers to boost local growth, the deputy prime minister Nick Clegg will announce on Monday in advance of a controversial report by Lord Heseltine on how Whitehall and local government must be restructured to boost growth outside the south-east.
Hesletine's report due to be published on Wednesday is to propose the abolition of two-tier councils in favour of more unitary bodies in a move that will be opposed by Eric Pickles, the communities secretary. He will also call for a shift of civil servants out of Whitehall into the city regions, the areas he regard as the engines of UK growth.
He is also expected to call for a bigger role for local chambers of commerce and greater power for the 39 local enterprise partnerships, the successor bodies to regional development agencies. The partnerships are made up of business leaders and local authorities.
Labour is likely to contrast Heseltine's activist approach with the more laissez-faire stance of many Tory free enterprise MPs.
Heseltine was asked by George Osborne to review policies for growth last March at a time when it was expected that many cities would vote in favour of electing their own mayors.
After the concept was rejected at referendums in Britain's major cities except Bristol, Hesltine has been looking at ways of encouraging greater co-operation between councils within a region.
The second wave of "city deals" Clegg is due to announce follow a first phase in which England's biggest cities apart from London were given greater flexibility on spending in return for performance commitments.
The second wave is aimed at the 14 next-largest cities, and six others with the highest population growth betweeen 2001 and 2010.
The deals include powers to "earn back" tax from the Treasury, and devolved transport and skills budgets .
In a speech Clegg will say: "You can't revive the regions just through handouts from Whitehall. Certainly not now, when the Treasury's coffers are bare. And even if we did have lots of money, the previous approach was fundamentally flawed.
Revenues from the financial services sector were recycled round the rest of the country through the long arm of the state, creating the illusion of strong, national growth."
Clegg sees the city deals as an important constitutional reform devolving power from central government. Peter Box, the chairman of the Local Government Association's economy and transport board, welcomed the new phase: "The UK may be officially out of recession but there is still a lot of work to be done to get Britain's economy back on track.
"Giving local areas more power and greater financial support to identify and nurture business opportunities is absolutely essential to economic recovery and the announcement of the second wave of city deals is another step in the right direction.
"It is important that all areas that want to bring councils, businesses and colleges together to promote local growth are supported in that ambition. We see absolutely no reason why city deals should not be offered to all eligible areas that want one."
