A POWERFUL elected mayor should enjoy tax-raising powers over an area stretching from north of Newcastle into County Durham, a report will conclude today.

The study proposes a single leader for the Newcastle "city region", with a £300m annual budget for transport, regeneration and skills.

The shake-up would extend beyond the city's boundaries to cover its "travel-to-work area" - which could be as far south as Chester-le-Street and Derwentside, in County Durham, and as far north as Wansbeck and Alnwick, in Northumberland.

More than 4,000 people commute daily to Newcastle from County Durham, according One NorthEast.

An elected mayor would avoid unpopular boundary changes, the report by the Institute of Public Policy Research (IPPR) concludes.

However, the idea might still face criticism that power was being sucked out of more rural areas.

Communities minister David Miliband underlined the Government's enthusiasm for devolving power to England's big cities yesterday. He will publish his own report in two weeks.

Today's report examines why England's biggest cities - despite prosperity in recent years - have fallen behind continental rivals such as Lyon, in France, and Bilbao, in Spain.

It concludes: "Our biggest city-regions need more power. Directly-elected mayors will be controversial, but they provide clear leadership and a visible line of accountability, as Ken Livingstone has shown in London."

Dr Adam Marshall, the study's researcher, told The Northern Echo: "If the city- region is to boost economic growth, it must cover all the areas that have economic links to the core of Newcastle-Gateshead.

"That will include areas beyond the Newcastle city boundary, bringing together groups of local authorities."

The IPPR proposes that companies - rather than "overstretched" council tax - should bankroll the new funding streams.

A supplementary business rate of up to five per cent, on top of existing rates, would pay for transport priorities. But the study said this would still be affordable for small firms, who would pay less than £150 extra a year.

A spokesman for the Office of the Deputy Prime Minister said the Government had not made a decision on city-region mayors.

He added: "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."

Alan Clarke, One NorthEast's chief executive, said: "This report is an interesting contribution - alongside a number of other reports - to the ongoing debate on the relationship between city- regions and wider regional economic development.