The federal government says a national competition review could lead to measures boosting economic growth and cutting costs for business.

Prime Minister Tony Abbott has written to the states and territories outlining his plan for an independent review into national competition policy – the first such review in 20 years.

Mr Abbott says fixing Australia’s competition policy will boost jobs and growth and improve quality of life.

The previous review, by academic and business leader Fred Hilmer, was credited with boosting Australia’s GDP by about $40 billion a year and cutting electricity prices nationally by 20 per cent.

“The review is designed to ensure that businesses big and small are competing on a genuinely level playing field,” Mr Abbott told a Business Council of Australia dinner in Sydney.

“Fierce but fair competition will give every business the best chance to succeed and give every customer the best chance of the best price.”

The original national competition policy linked incentive payments by the commonwealth to the states for competition reform and productivity gains.

The report will be produced within 12 months by a panel that will be announced in coming months.

The prime minister also announced the make-up of his business advisory council, to be chaired by businessman Maurice Newman.

It will include Jac Nasser (BHP Billiton), Michael Chaney (NAB, Woodside), Catherine Livingstone (Telstra), Solomon Lew (Premier Investments), Peter Fox (Linfox), Daniel Grollo (Grocon), Graham Kraehe (Bluescope, Brambles), Jane Wilson (Sonic Healthcare), Barry Irvin (Bega Cheese), John Hart (Restaurant and Catering Australia) and former productivity commission head Gary Banks.

Mr Abbott said the council would guide, encourage and “warn” of issues arising as the government reformed the economy.

The council will meet three times a year and the first meeting will be this month.