Councils are to be allowed to borrow £500 million to settle thousands of equal pay claims among their staff, the Government has announced.
The move affects 46 local authorities in England which were facing the threat of legal action by trade unions on behalf of low-paid - mainly women - workers such as dinner ladies and carers.
Unison said the announcement was a "significant breakthrough" in its long-running battle for pay equality.
The union raised its concerns during the Labour Party's annual conference in Bournemouth this week and was preparing a series of legal cases after waiting years to resolve the row over whether women were paid the same rates as men in equal-value jobs.
The Government said it wanted to speed up equal pay for local government women workers by allowing "significant amounts" of back pay to be treated as capital expenditure which will allow local authorities to spread the cost or fund it from receipts.
Local Government Minister John Healey said the announcement would give the authorities financial flexibility to make one-off back payments to thousands of workers.
"Local authorities have to settle their equal pay obligations but we recognise the position for many is tough and I want to do what I can to give them the financial flexibility they need to implement fair pay systems."
Mr Healey said he would also like to see authorities do more to tackle the issue of equal pay in a "proactive and affordable manner".
"We have already amended the regulations on capital finance to improve the process of identifying and dealing with any equal pay liabilities," he said. "(These) allocations go a step further by allowing councils to treat significant amounts of back pay costs in 2007/08 as capital.
"This gives the flexibility they need to get on and work with unions to ensure people get the benefit of equal pay to which they are entitled."
