Manchester is to get its own directly elected mayor with powers over transport, housing, planning and policing, under plans unveiled by George Osborne on Monday.

“Devo Manc” is the latest initiative in the chancellor’s plan to create a “northern powerhouse” to rival London, with other cities expected to follow.

The directly elected mayor of Greater Manchester would gain control of a £300m housing investment fund, powers over strategic planning, responsibility for franchised bus services and for integrated transport ticketing along the lines of London’s Oyster card.

The GMCA is to take over responsibility for business support and power to restructure further education in Greater Manchester. The government is to legislate to enable the changes, with the mayoral election potentially taking place in 2017.

The mayoralty is the latest in a line of announcements on the north from the chancellor’s office. Last week, Osborne announced plans to develop HS3, a new high-speed rail link designed to improve east-west transport links in the north. In August, the chancellor announced plans for a National Institute for Materials Research and Innovation in the north of England and a £60m Graphene Engineering Innovation Centre in Manchester.

Lord Smith, chair of the GMCA, said the Devo Manc settlement was a momentous moment for Greater Manchester. “It gives us greater control over our own destiny in several key areas and the ability to base decisions on local priorities and needs, rather than on ‘one size fits all’ dictates from Westminster,” he said.

“This isn’t about taking powers from individual Greater Manchester authorities. It’s about powers coming down from central government to a more localised level.”

Sir Richard Leese, leader of Manchester city council, said an over-centralised national system had not delivered the best results for the people and economy of the north, but the Devo Manc settlement had shifted the debate. “We are extremely pleased that we can now demonstrate what a city region with greater freedoms can achieve and contribute further to the growth of the UK,” he said.

“Our ultimate ambition is for full devolution of all public spending in Greater Manchester, currently around £22bn a year, so that we either influence or control the whole amount. We recognise that this cannot happen overnight and there needs to be a staged approach based on evidence that devolution delivers increased economic growth and better public services. But today’s settlement is a huge move forwards and a road map for the future.”

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