England's regions can no longer rely on handouts from tax receipts collected in the City, Deputy Prime Minister Nick Clegg will say today as he announces Government plans to hand more local authorities wider spending powers.

A selected group of 20 cities and regions will no longer have to meet strict diktats from Whitehall, as part of plans to give some councils the right to spend tax revenues collected by companies based in their area, Mr Clegg will say.

Ministers have already handed eight cities, including Manchester, Sheffield and Newcastle, more powers over strategic planning decisions and transport budgets.

Now they plan to allow 20 other towns, cities and regions the right to bid for increased powers.

But as the list is announced, Mr Clegg will warn the successful councils they can no longer rely on government handouts for major infrastructure projects which were paid for by large tax receipts collected within the Square Mile.

"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," Mr Clegg will say.

"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. Jobs were created but in an unbalanced way, over-relying on the public sector, funded by tax receipts from the City of London.

"And we've seen what happens when the conveyor belt breaks, as it did spectacularly in 2008. Those tax receipts fall, the money stops flowing and the whole country feels the consequences as the public sector contracts and jobs are lost.

"This nation is made up of 100,000 square miles. It cannot rely so heavily on one. So we need a stronger, more resilient economy, built on the backs of industrious and independent cities."

The first round of deals with local councils was successful. Manchester was allowed to keep revenue raised in the city to spend on its own major infrastructure projects, Mr Clegg will say.

"Wave one were the trailblazers. Their ingenuity and drive have made it possible to have this second round. But wave two will help decide whether this level of decentralisation goes from being the exception to the norm. Personally, I'd like to see a deal for every area that can make it work.

"This is a rare opportunity to rewire our political system, to unleash the grassroots genius that will take our economy from strength to strength."

The 20 towns, cities and regions which will be allowed to bid to take part in the scheme are the Black Country; Bournemouth; Brighton and Hove; Cambridge; Coventry and Warwickshire; Hull and Humber; Ipswich; Leicester and Leicestershire; Milton Keynes; Norwich; Oxford; Reading; Plymouth; Preston and Lancashire; Southampton and Portsmouth; Southend; Stoke and Staffordshire; Sunderland and the North East; Swindon and Wiltshire; and Tees Valley.