The government is planning to cut many richer local councils loose from Whitehall control in one of the biggest shakeups of local government funding since the 1980s.

Between a quarter and a third of local authorities will become "free councils" entirely independent of central government grant by the end of the parliament in 2015, under plans to be unveiled by the coalition in the next fortnight.

Many richer boroughs such as Westminster and big metropolitan councils would no longer be required to use their business rates to subsidise other parts of the country, although ministers say there would still be "an element of redistribution between wealthier and poorer councils".

The Conservatives and Liberal Democrats are close to agreement on the terms of a quick six-month inquiry into the future of local council funding.

This will focus on how to restore the right of councils in England to retain the bulk of revenue from business rates, as well as to keep more council tax revenue. At present business rates are collected by local government, but then all sent to central government for redistribution using a complex and little understood formula.

One minister said: "There will have to be an element of redistribution between wealthier and poorer councils, but the aim is that between a quarter and a third of councils will be free from central government grant.

"They will be free councils, and the idea is that they have a real incentive for the first time to encourage business in their locality. Up to a third of councils will be freed from dependence on central government. That number will gradually increase."

It is estimated that at present about 300 councils receive subsidies from business rate redistribution and 80 or so councils, such as Westminster and the big metropolitan authorities, put money in from the business rate .

Business rates raised £24bn in 2009-10; £20bn of this applies to England.

The Liberal Democrats are understood to have given ground by accepting that the review will not, at this stage, look into whether individual councils should have the power to vary the business rate, something the CBI and the British Chambers of Commerce vehemently oppose.

Business organisations want to maintain a nationally set uniform business rate. But the business secretary, Vince Cable, wanted to extend localism by allowing councils to vary the business rate, largely restoring the position held before changes imposed by the Thatcher administration in 1990.

The review, government sources also said, is not likely to look in detail at giving councils fresh tax-raising powers such as over hotels, fuel, alcohol, office parking and landfill.

Nick Clegg had initially proposed that these additional powers be included in the review, but his officials said that the focus for the moment would not be on these.

The Labour government stepped back from relocalising business rates following a three-year inquiry concluded in 2007 led by Michael Lyons, then chairman of the Audit Commission. Instead he proposed a limited local business supplement – a top-up levy to pay for special infrastructure schemes.

Ministers regard the basic research conducted by the Lyons inquiry as still largely relevant, meaning that the issue now is to have the political will to make the change, and ensure that an effective form of cross-subsidy is retained so poorer councils with a low business base are not damaged.

The proposal for relocalising the business rate was first proposed in a local growth strategy produced by Cable last year, but since then progress has been bogged down in a dispute between the Conservatives and Lib Dems over the precise breadth of the review, and how extreme the localist agenda should become.

The proportion of revenue raised from the business rate, a tax on property and land, has shrunk over the past 20 years. It is expected that the review of local government finance will be completed by the summer.

Local government raises 17% of its income from local taxation, compared with the OECD average of 55%.

In an attempt to build momentum behind the change, Birmingham, Manchester and Westminster councils have together set up an independent commission into the future of council funding chaired by Sir Stuart Lipton, one of Britain's leading property developers.