REGIONAL government for the North-East and Yorkshire could be one of the "great transforming reforms" of the 21st Century, Peter Mandelson said yesterday.

The Hartlepool MP was speaking to 1,000 guests, who included England football manager Sven Goran Eriksson, in Cheshire. They also heard him pay an extraordinary compliment to John Prescott - the man who once compared Mr Mandelson to a crab.

Speaking to businessmen in the North-West, with which the North-East and Yorkshire is preparing for a referendum on devolution next year, Mr Mandelson said: "I passionately hope these regions vote yes. This can be one of the great transforming constitutional reforms of this century. And two words sum up what has made it possible and those two words are John Prescott."

Mr Mandelson accepted that there were tensions within the regions.

He said: "In the North-East, we have differences between the Tyne and Tees, and, even, I have to admit, in my own constituency between Hartlepool and West Hartlepool.

"But amid these traditional local rivalries, there is a shared regional sense of being in it together, of standing still or going forward together."

Mr Mandelson told the North West Business Convention, whose other guests included comedian Rory Bremner and astronaut Neil Armstrong, that traditional Government policies had created a North-South divide to the detriment of all.

"Look at the problems across the North of England and you will see how a region that is working under-capacity exacerbates social problems like low educational achievement and ill-health," he said.

"In the meantime, the South is suffering the consequences of overcrowding. "

Mr Mandelson said that the fresh approach of devolved government could solve these problems.