Councils in England will see their spending power cut by 1.7% next year, Local Government Secretary Eric Pickles has announced.

He told MPs the settlement represented a "bargain" for local authorities, adding that the Government would offer support for the third year so that council taxes could be frozen.

Mr Pickles described the funding arrangements, which will take effect from next April, as a "watershed moment", with power shifted from Whitehall to town halls.

"This settlement recognises the responsibility of local government to fund sensible savings and make better use of resources."

The minister told the Commons that a small number of local authorities will require larger savings to be made, but he said no council will face a loss of more than 8.8% of their total spending power thanks to a new efficiency support grant.

"As the name implies, to qualify, councils will have to improve services to receive this grant. It is unfair on the rest of local government to expect them to subsidise other councils' failure to embrace modernity," he said.

Mr Pickles said councils were "sitting on" a record £16 billion of reserves.

Shadow communities and local government secretary Hilary Benn said: "It is clear that he is living in a world of his own, because he simply does not understand the impact that his decisions on funding are having on the services and local people who use and rely upon them."

An estimated 70% of council income will now be raised locally compared to 56% under the centrally-distributed "begging-bowl" Formula Grant system, said the Communities and Local Government Department (DCLG).

"From April 2013, councils can channel this greater local control into encouraging local jobs and local firms via a new business rate retention incentive that rewards them for growth. It could potentially add £10 billion to the economy by 2020." for Communities and Local Government)