Road pricing will be tested in at least one big city within five years, according to proposals being published by the Government today.

Local authorities will be granted powers to impose charges for each mile driven on congested roads, with any profit being spent on improving public transport.

Manchester and Birmingham are the front-runners competing for a government fund worth £200 million a year that has been earmarked for local authorities that agree to introduce charging schemes.

Ministers want the technology for charging by the mile to be tested by drivers in one or two cities before being introduced nationally.

The cities are expected to use either satellite-tracking devices in cars or much simpler electronic tags that will be read by roadside beacons positioned at regular intervals.

A draft road transport Bill, published today, will propose incentives to encourage local authorities to take part in road-pricing trials.

They will be allowed to take control of local buses from private operators and set the routes, frequency and fares.

Transport authorities in major regional cities such as Birmingham, Leeds, Manchester and Sheffield will also be able to apply for powers over all roads in their area. But the greatest reward for a city that agrees to introduce road pricing will be government funding for large public transport schemes, such as new tram lines.

Local authority leaders have accused the Government of trying to bribe them into introducing road pricing. They are wary of the potential political backlash from drivers and were alarmed by the 1.8 million-signature petition on the Downing Steet website against the idea of a national scheme.

The authorities believe that enough residents could be persuaded to support a local trial if it was made clear that this was the only way of funding improvements to public transport.

David Sparks, chairman of the Local Government Association’s transport board, said: “Congestion is a national problem, but the solutions must be found locally. Local road-pricing schemes are not an end in themselves. If people are going to stop using their cars, they will still need to travel.

“Councils are changing services people use for the better, and ministers must loosen their grip and devolve transport funding and powers to enable them to provide better public transport alternatives.”

Bus companies are considering a legal challenge to any attempt to remove their local monopolies.

They claim that private control of buses is more efficient, but bus passenger numbers are falling in every big city outside London.

Ten locations

— The ten locations identified by the DfT as potential trial areas are Manchester, Durham, Birmingham, Shrewsbury, Reading, Norwich, Bristol and Bath, Cambridge, the East Midlands (Nottingham, Derby and Leicester) and Tyne & Wear

— Because their size would involve up to a million motorists, Manchester and Birmingham are thought to be the DfT’s favourites to host a trial

— The cities will submit bids in July and the winner or winners are due to be announced by the end of the year, with the trials starting around 2012