The Bill - the first major step in Labour's local government reforms - replaces CCT with best value and ends crude, universal capping.
Local government minister Hilary Armstrong said best value would introduce the 'third way' of public/private partnerships which councils and businesses had been calling for. She said it demonstrated the government's 'zero tolerance of inefficiency, mismanagement and waste'.
The Tories and Liberal Democrats tore into the Bill's proposals. Tory environment spokesman Bernard Jenkin claimed the Bill gave central government more power over councils, amounting to a 'further lurch towards the nationalisation of local councils'.
'Even the best run councils will live in fear of the secretary of state exercising his new and wide-ranging discretionary powers, which ultimately provide the means by which the Treasury can discipline local government beyond the reach of any democratic accountability.'
Mr Jenkin said the 27 new powers encompassed the ability to constrain budgets to the ability to take over the running of services.
Ms Armstrong took the unusual step of announcing amendments to a Bill during the second reading, to reflect the role of chief constables in achieving best value and 'to define more clearly' the respective roles of the Audit Commission and Her Majesty's Inspectorate of Constabulary.
Liberal Democrat local government spokesman Paul Burstow told LGC that this correction was 'indicative of a Bill which has not been entirely thought through'.
Mr Jenkin also claimed the Bill was ill-prepared, saying a clause allowing the use of secondary legislative powers to amend primary legislation 'suggests the government does not know what changes need to be made, and will think of them later'. He claimed crude and universal capping was to be replaced 'by capping that is secretive and retrospective'.
The Liberal Democrats said there was little difference between the new 'sophisticated' capping system in the Bill and the one that exists.
Mr Burstow told the Commons local people should be allowed to decide whether rises were excessive or not. A Lib Dem amendment opposing a second reading for the Bill - because it created powers 'amounting to the nationalisation of local government' - was defeated.
Ministers sought to calm fears about the powerful intervention powers created by the Bill, which was passed with a majority of 164.
Welsh Office minister Jon Owen Jones said the government was developing a protocol with the Local Government Association, setting out the general principles underpinning the exercise of the powers.
Speaking shortly before the debate, Ms Armstrong said she was unconcerned about the drop in contracts being let to the private sector.
'There are all sorts of reasons why the percentage has dropped. It's not something that gives me undue concern because the word out there is that competition is part of how you deliver best value,' she said.