A NEW high-speed rail connection and better roads could create an economic "powerhouse" in the north of England to rival the success of London, George Osborne has said.

The Chancellor indicated that an upgraded, high-speed link between Manchester and Leeds should be considered as part of the review of the second phase of the HS2 project.

He also said there was a "strong case" for more elected mayors who could drive growth and development in northern cities.

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Mr Osborne was speaking on BBC Radio 4's Today programme ahead of delivering a keynote speech in Manchester later.

"In this country we have some great cities, but none are on the scale of the global city that is London," Mr Osborne said.

"We need to create a northern powerhouse, bring together cities, like Manchester, Leeds, Liverpool, Hull, that are physically quite close to each other, but don't have the transport links, don't cooperate in the way that you would see in a single global city."

Mr Osborne admitted that the economic imbalance towards the South East was partly the result of policy shortcomings.

"I'm saying that our approach under governments of all colours has not been as successful as it might be," he said.

"There has been one approach which is sort of just move some public sector jobs to different parts of our country and think that that is the core solution.

"There has also been an approach which says just leave it all to the market, and that hasn't really worked."

He suggested a mixture of both was needed to achieve the best results for the economy in the North.

Mr Osborne said one of the main purposes of his speech was to "start a conversation", but added that work on better transport and policy-making connections between such cities - an idea first floated more than a decade ago - was "already quite well under way".

The Chancellor went on: "You also need to see strong city leadership. I think there is a strong case for elected mayors in places like Greater Manchester to make sure they have the same powers, the same clout, as the mayor of London does in our capital.

"I think it helps to have a single individual who is, of course, democratically accountable, but also bringing together powers over planning, housing and transport."

Concerns about connectivity between the northern cities were raised in the report by HS2 Ltd's chairman Sir David Higgins earlier this year.

In his speech, Mr Osborne will say HS2 as currently planned will "change the economic geography of our country" and mean London and Manchester are an hour apart but "we must do much more to connect our northern cities".

"Today I want us to start thinking about whether to build a new high-speed rail connection east-west from Manchester to Leeds."

The proposed line would be based on the existing rail route between the cities "but speeded up with new tunnels and infrastructure" to create "a third high speed railway for Britain".

Following the existing route between Manchester and Leeds could help avoid the levels of political and environmental opposition which the existing plans for HS2 have faced.

Mr Osborne will say London's dominance is "not healthy" for the economy and a northern counterbalance was needed.

"The cities of the North are individually strong, but collectively not strong enough," he will say.

"The whole is less than the sum of its parts. So the powerhouse of London dominates more and more.

"And that's not healthy for our economy. It's not good for our country. 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.

"Able to provide jobs and opportunities and security to the many, many people who live here, and for whom this is all about."

He will say that in a "modern, knowledge-based, economy, city size matters like never before".

Shadow chancellor Ed Balls said: "Nobody will believe the Tories can deliver the jobs, growth and investment we need for the north of England.

"Regional growth divides have widened markedly since 2010. The Tories scrapped Labour's successful regional development agencies, failed to implement Lord Heseltine's growth report and are planning to cut infrastructure investment next year.

"On high-speed rail, we said months ago that we need value for money for the taxpayer and to improve the existing plans to maximise the benefits for the whole country and strengthen the links between northern cities. Ministers need finally to start listening."

Mr Osborne said he would be prepared to back a third high-speed rail line with Government money, but declined to put a figure on the cost of the project.

If the Manchester-Leeds route cost the same amount per mile as HS2, it would come in at about £6-7 billion, said the Chancellor. But he said it might be cheaper to build because of the possibility of using existing rail corridors.

Mr Osborne also indicated that he hoped to invest Government cash in scientific and academic developments in the north of England.

The Chancellor told BBC1's Breakfast: "I'm prepared to back this up with money. It's a vision of how you create better road and rail links - high-speed rail - across the Pennines. But it's also about making sure we've got the best science and universities here, making sure the resources are here.

"We are about to commit, later this year, many billions of pounds - precisely because we've taken tough decisions on project expenditure elsewhere - to investing in our economy, and I want to make sure that that's not just scatter-gun and we don't just look at a whole series of individual projects, but we try to bring it all together for a vision of how the north of England can have this northern powerhouse, how the cities of the North together can be greater than the sum of their parts.

"We are going to put money in. There's already money going in right now to electrify the lines across the Pennines, and that's £600 million. Later this year we will be making announcements of where £7 billion of science could go, and I'm saying let's get the cities of the North working together to make a big bid for northern science.

"We've also got to be investing in roads, because a lot of people commuting into Manchester and Leeds will be doing so by car."

Stephen Joseph, chief executive of Campaign for Better Transport, said: "The Chancellor's call for more rail investment to link northern cities is welcome but runs counter to the Government's current consultation on northern rail services.

"This plan would mean 30-year-old diesel trains still being used and suggests service cuts and fares increases. The Government should commit wholeheartedly to real investment and growth in the north's rail network, rather than sending out these mixed messages."