George Osborne has confirmed a second “northern powerhouse” is to be established – alongside Greater Manchester – with a Sheffield city region combined authority with its own elected mayor.

Friday’s announcement is a coup for the chancellor, who is winning support for his plans from Labour local government leaders despite the hostility from the national Labour party.

Osborne said a Sheffield city region mayor would be elected for the first time in 2017 by voters across South Yorkshire. He is due to sign the deal in Sheffield on Friday . It will be subject to consultation with local councils, and appears to be more limited than the deal agreed with Greater Manchester.

The new mayor will oversee transport budgets, franchised bus services and strategic planning, giving the area a chance to strengthen its position as a world-class manufacturing centre.

The new authority has been handed a new “gain share” deal by the Treasury within an envelope of £30m a year for 30 years – giving Sheffield the power to use new funding to boost local growth and invest in local manufacturing and innovation.

The city region covers some of the great Labour heartlands of Rotherham, Sheffield, Doncaster, Bolsover and Bassetlaw, and suggests Labour councils are willing to swallow their opposition to Osborne and the idea of a directly elected mayor in return for the powers they are likely to be offered.

The city region will cross county borders and may raise issues over policing. There have been disputes about the precise title and boundaries of the combined authority, likely to encompass 2 million people.

Details of the powers to be devolved will continue to be negotiated over the next few weeks. But it is a boost for Osborne before the Conservative party conference.

Osborne said: “Sheffield is forging ahead in the northern powerhouse, which this historic deal proves is taking shape. I want to thank the civic leaders of South Yorkshire who have worked with me to embrace this opportunity.

“It has the power to change the shape of local government in the region in a way that would have been unthinkable even just a few years ago. For local people, it will mean the decisions that affect them being taken locally.

“Manchester is not a one-off – far from it. In becoming the second great northern city to sign up to managing its own affairs with this ambitious agreement, Sheffield city region is playing a vital part in helping to build the northern powerhouse.”

Cllr Sir Stephen Houghton, the chair of the Sheffield city region combined authority, said: “This proposal marks the next step on our devolution journey and will enable local leaders to make bigger and better local decisions over skills, business growth and infrastructure.

“Over the coming months we will be speaking to local residents, businesses and partners about what this means for economic growth in their city region.”

The chancellor has made the northern powerhouse project the single biggest policy initiative he wants to take in his remaining period at the Treasury since he thinks it will rebalance the UK economy and find a means of regenerating city economies that have long been moribund.

He has been advised by an economist, Jim O’Neill, who as a Treasury minister in the House of Lords has been leading the negotiations.

The northern powerhouse concept has been tarnished in recent weeks by delays in rail electrification projects and the mothballing of the SSI steelworks in Redcar. This week, Osborne announced the unblocking of the suspended rail electrification works.

Labour under its new leader, Jeremy Corbyn, has so far taken little interest in devolution to English city regions, publishing one policy paper that showed hostility to the concept. Labour MPs say the danger of the devolution deals is that local councils will find they are made responsible for implementing Treasury-imposed cuts.

A West Yorkshire combined authority, largely advocated by Labour politicians, has previously been described as “very close” to being offered a deal by the Treasury, although some Labour figures in Leeds and Wakefield fear giving Osborne any party conference headlines about a dramatic remaking of the state.

Osborne took northern council leaders with him on his trade trip to China as a sign of how seriously he wants to involve them in his grand experiment.

Separately, Conservative politicians in Yorkshire hoped that a competing “greater Yorkshire” plan, which would tie West, North and east Yorkshire together in a single devolution agreement, can yet be made to work.

The outline South Yorkshire combined authority was established in 2014, bringing together an integrated transport authority and an economic prosperity board.



Alexandra Jones, the chief executive of the thinktank Centre for Cities, said: “This deal is a great step forward for Sheffield, and will give local leaders more of the powers they need to improve transport infrastructure, boost skills and support more businesses and jobs, which will make a big difference to the lives of people all across the city region. By introducing a mayor, local leaders have also ensured that Sheffield is well placed to receive more powers and funding from the government in the future.

“Today’s announcement will increase the pressure on other big cities which are yet to agree a deal, and which risk falling further behind if they fail to do so before the government’s comprehensive spending review next month.

“Crucially, this deal for Sheffield, and previous agreements with Greater Manchester, will only go ahead if the government’s cities and local government bill is successfully passed through parliament in the next few months. It’s vital that MPs from all parties support the bill, otherwise UK cities will miss out on the benefits and opportunities that devolution would offer.”