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People living in parts of England will be able to decide where new houses, shops and businesses should go in their neighbourhood, under a localism trial.

Seventeen pilot areas will get £20,000 to draft plans, which could be enacted once the Localism Bill becomes law.

The plans must comply with national planning policy, law and local strategy, and be backed by at least half of voters in a local referendum.

Labour says it will make council planning "incoherent and ineffective".

Labour also argues that the policy has been hastily put together and could make local authorities less effective.

But ministers say it will give people a say over the location of shops and schools and style of developments locally.

Neighbourhood planning powers are in the Localism Bill, currently going through Parliament, which is expected to get Royal Assent towards the end of the year.

They would allow people to come together - through a local parish council or neighbourhood forum - and say where they think new houses, businesses and shops should go.

And new "neighbourhood orders" would allow them to relax regulations on certain developments on particular sites, such as side extensions and loft conversions, and grant automatic planning permission.

The 17 areas which will get funding to draw up their own draft neighbourhood plans include Bermondsey in London, Cerne Abbas in West Dorset and Devonshire Park in Wirral.

The pilot areas announced on Saturday will not be able to put their draft plans into effect immediately, but the government says they will be ready to go once the legislation goes through.

Housing minister Greg Clark said planning had become a controversial issue because people felt "alienated" from the process.

He said: "Neighbourhood planning will help to reverse that position by giving communities the ability to shape development in their area rather than being dictated to.

"Localism and growth will go hand in hand. By giving local people a greater say together with new incentives to share in the benefits of growth, our reforms will help to create the conditions where communities begin to welcome development rather than resist it at all costs."

In his Budget speech Chancellor George Osborne said the planning system was a "chronic obstacle to economic growth" and blamed "cumbersome" planning rules for standing "in the way of new jobs".

He said while local people should have a greater say in planning, the government was easing regulations and a new presumption planning permission would be granted for "sustainable development".

The government says it is opposed to top-down targets and has axed Labour's regional spatial strategies, which set development plans for English regions over 15 to 20 years. Instead it says it is offering councils a "new homes bonus" to encourage them to build homes by matching the extra council tax from the new properties.

But the Commons communities and local government committee - which monitors the work of the department - has raised concerns that it will mean fewer houses are built.

It says the government may face a "stark choice in deciding whether to compromise either on its intention to build more homes than the previous government, or on its desire to promote localism".

The 17 pilot areas are: Balsall Heath, Birmingham; Lockleaze, Bristol; Bermondsey, London; Hackbridge, Surrey; North Shields Fish Quay, Tyneside; Devonshire Park, Wirral; Cockermouth, Cumbria; Blaby, Leicester; Banbury, Oxfordshire; Lynton, Exmoor; Newstead, Nottinghamshire; Ringmer, Lewes; Allendale, Northumberland; Much Wenlock, Shropshire; Dawlish, Devon; Cerne Abbas, West Dorset; and Bray, Maidenhead.