Every household in the borough could be given around £10 each to spend at supermarkets if recycling rates improve, council bosses have revealed.
But market stallholders and opposition councillors have attacked the initiative saying it will damage the town centre.
Under the scheme, which could be the first of its kind in the country, all 36,470 households would be rewarded with supermarket vouchers for helping the council to improve on its recycling record.
Although the scheme is in its early stages, households could be rewarded a voucher of £5 for every one per cent increase the borough recycles between April 2012 and March 2013.
The current recycling figure for the borough is around 35 per cent or 8,598 tonnes.
However market hall traders and councillors have condemned the scheme claiming it would be ‘another nail in the small retailers coffin’.
John Healey, of Fairbrothers Biscuits in the market hall, said: “It’s a bad idea for small businesses. There’s no good sending all the people to supermarkets. The vouchers should be for everywhere to give people the choice.”
Shaun Foster, owner of Lancashire Furniture Company, said: “I think to encourage people to recycle there has to be benefits for everybody.
“They need to help invest in businesses in the town centre to help the place progress. All that is doing is helping the big people.”
Council bosses have submitted a bid for £39,000 of government funding to bankroll the scheme.
Councillor Marlene Haworth said: “People know themselves that when you go to a supermarket you will drive straight home and won’t go into the town centre.
“I am absolutely certain that an incentive of £5 or £10 will only encourage the people who already do it and I don’t think it will work for people who don’t.
“When people go to the supermarkets with their voucher they will probably spend more money, even if it’s only a few pounds, and that is money that could be spent in the town centre and it won’t be.”
Coun Peter Clarke added: “While I can see the advantage of the scheme, if we are not careful this could result in an another nail in the small retailers coffin.”
The result of the bid will be announced by August 16 and if successful they would then approach supermarkets to find partners for it.
Council leader Miles Parkinson said: “It’s a very valid point but it’s unlikely that we can gear the majority of the smaller traders to come together to take part in the scheme.
“Most businesses are struggling and it’s really only the supermarkets that can be the one's which will take up the gauntlet.
“In the long term it’s something that can definitely be looked at.”