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Britain's two biggest regional cities should be given elected "super mayors" with tax-raising powers, Labour's favourite thinktank suggested today.
Birmingham and Manchester would become "city regions" under the plans outlined by the Institute for Public Policy Research, with the power to impose a 5% levy on business rates to fund local transport, regeneration and skills programmes.
If successful, the concept could see other regional powerhouses such as Liverpool or Leeds follow suit, and the abolition of some unelected quangos like regional development boards.
Although the suggestion was met with a cautious response today from the Office of the Deputy Prime Minister, there were fears from the Local Government Association that such devolution could favour the bigger provincial cities at the expense of places such as Derby or Chester.
The government's plans for devolving power regionally are currently stalled. Having created the London mayor in 2000 - the inspiration for much of today's IPPR report - and a slew of directly elected mayors in boroughs and towns from Hackney to Hartlepool, plans for regional assemblies came to an abrupt halt in 2004, when voters in the north-east rejected 3-1 plans for an pilot assembly there.
That was supposed to be the model for further English regional assemblies in other areas like the north-west and south-west. Meanwhile the local government minister, David Milliband, this week suggested devolving powers for some services from elected local authorities to voluntary groups and "citizen's juries".
Today's suggestion would see large swaths around Birmingham and Manchester subsumed into a "city region" with one directly elected mayor.
Unlike the London example, there would not be a subsidiary assembly scrutinizing them.
Around £1.2bn would be switched from the Regional Development Agencies, Transport Boards and the Learning and Skills Council, the influential IPPR recommends.
However, this should also be topped up by the 5% levy on business rates.
International evidence from Bilbao in Spain to Portland in the US shows mayors with tax-raising and spending powers can improve economic performance and political accountability, the report's author, Dr Adam Marshall, said.
The long-delayed Lyons review into both local government powers and financing is now due in December, meanwhile a white paper on local government is due this summer, and next year will see the 2007 comprehensive spending review.
IPPR spokesman Dermot Finch said: "This is the best way for them to increase jobs, improve transport and drive local growth."
"Directly-elected mayors will be controversial but they provide clear leadership and a visible line of accountability, as Ken Livingstone has shown in London."
David Frost, director general of the British Chamber of Commerce, said: "This report kick-starts the debate but there are still many questions to which the business community wants answers."
Sir Michael Lyons, head of the local government inquiry, said the study was "important and welcome".
"I don't agree with all of its conclusions but we must consider accountability issues alongside questions of what local government should do and how it should be paid for," he said.
The chair of the LGA's regeneration board, Chris White, said: "Mayors should only be introduced if people actually want them.
"Greater freedoms for our big cities are needed and necessary, but what about the Chesters and the Derbys? There's a real danger that smaller cities, suburban and rural areas could end up being neglected.
"Cities need more freedoms from regional bureaucratic quangos, more powers over transport and provisions to raise more money locally.
"But these are powers that should be made available to all councils, not just a select few. Concentrating just on the big cities risks leaving suburbia and rural areas behind."
A spokesman for the Office of the Deputy Prime Minister welcomed the report but said at this stage the government had not made a decision on the introduction of mayors in big cities.
"The government is convinced that strong leadership for our cities is essential if they are to achieve their potential, economically and socially.
"We recognise that directly-elected mayors are one option for delivering this.
"We are working very closely with Birmingham and Manchester and other core cities and their associated local authorities, in looking at possible city-region options, and at this stage we are not ruling out, or in, any specific propositions - including those put forward in this IPPR report."
The report itself, from the Centre for Cities unit within the IPPR, is officially published on Friday in Birmingham, and will be attended by Sir Michael Lyons.
The Liberal Democrat's local government spokeswoman, Sarah Teather, said the report was "marred by Labour's blinkered preoccupation with mayors".
She added: "This report is like the curate's egg. It's packed full of good ideas, but ... councils in every part of Britain, not just in our cities, need financial freedom to drive economic development, and deliver the public services local people want."
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