GEORGE Osborne must include the North-East in new plans to boost regional economies via high speed rail links, the Institute of Directors (IoD) has said.

The IoD, which branded the HS2 rail link “a grand folly", said this morning it is far more enthusiastic about the Chancellor’s £7bn plan to revamp road and rail links and create a "northern global powerhouse."

Mr Osborne hopes to link Manchester and Leeds as part of a review into the second phase of the £50bn HS2 high speed project.

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However, the IoD has warned Mr Osborne not to forget the cities of the North-East in the Government’s bid to help northern cities take on the world.

Graham Robb, the IoD regional chairman, said: “The North-East is THE exporting region in the country, so it makes sense that it should be involved in any decision on major UK infrastructure projects that could have a huge impact on business."

Mr Robb pointed to the latest IoD survey which showed that improved transport links were the number one priority for bosses across the North-East.

The Chancellor will use a speech in Manchester today to say that there is now a case for an east to west high speed line between northern cities. He is concerned that the British economy is too reliant on London and the South- East.

He will say: "We need to think big. We need an ambitious plan to make the cities and towns here in this northern belt radically more connected from east to west – to create the equivalent of travelling around a single global city.

"As well as fixing the roads, that means considering a new high-speed rail link. Today I want us to start thinking about whether to build a new high-speed rail connection east-west from Manchester to Leeds. Based on the existing rail route, but speeded up with new tunnels and infrastructure. A third high speed railway for Britain."

The plan for the first phase of the HS2 project between London and Birmingham has proved controversial. Some residents are set to be disrupted and there is criticism of its price tag. The IoD feared it would act as a magnet that drew more wealth to London, rather than radiate prosperity to the regions.

Mr Osborne will say: "Of course, there are opponents of the project – just as there were opponents of the original railways. I've discovered that almost everything worth doing in politics is controversial. But thanks to the unusual alliance of a Conservative prime minister and Labour civic leaders, we are making it happen."

He will add: “We need a northern powerhouse too. Not one city, but a collection of northern cities – sufficiently close to each other that combined they can take on the world."