A Labour government would break up the Treasury and create a new devolved unit in the north of England, the shadow chancellor has said.

John McDonnell said the £250bn unit would be responsible for improving national infrastructure, including overhauling the north’s creaking transport system.

In an interview with the Manchester Evening News, he said the Treasury needed to acknowledge the mistakes of the past and overhaul the way it thought about spending outside London.

He added: “We’re going to break up No 11. Part of No 11 is going to the north.”

McDonnell said he had not yet drawn up detailed plans about how decision-making over infrastructure would be devolved to local areas, or where the unit would be based, but said he was due to meet the region’s metro mayors to discuss the plans in the coming weeks.

The new unit, called the national transformation fund, would have a decade-long budget for improving infrastructure including northern railways.

McDonnell said: “We’re going to locate this in the north. If we’re going to address regional inequalities, the NTF is one of the big vehicles for doing that. Large amounts of that money will go to the north, so therefore the best thing to do is to put the administrators in the north.”

He added: “I’m meeting with all the mayors and we’re going to be asking them what sort of structures they think is best both in terms of their individual decision-making – so when they bid for resources, not just bidding for individual projects but pots of money as well – but also how they think it’s best to coordinate across the north.

“It isn’t just relocating the unit, it’s relocating decision-making as well. But actually the relocation of parts of No 11 I think is significant, because you do want the civil servants meeting up with businesses and civic leaders and others.

“People think it isn’t important, that it doesn’t matter where they’re located. Oh yes it does. People need to know what lives people are living in those areas.”

The pledge comes five years after David Cameron and George Osborne announced their northern powerhouse initiative in an attempt to rebalance the UK’s lopsided economy.

The project devolved some powers to new metro mayors covering half of the north of England – including Greater Manchester, the Liverpool City Region and Tees Valley – but political leaders across the region believe the initiative has fallen off the radar under Theresa May.

Boris Johnson and Jeremy Hunt have been urged to commit to rebalancing the UK economy by giving the green light to the high-speed rail lines, HS2 and Northern Powerhouse Rail.

Hunt gave his “unequivocal” backing to both major projects at a Conservative leadership hustings in Darlington on Friday but Johnson, the frontrunner, has cast doubt on the future of the £56bn HS2.