A multi-billion pound devolution deal to create a new North East mayor is finally on the verge of being sealed – and a late twist has seen County Durham issued an ultimatum if it wants to come back into the fold.

Negotiations have been taking place for months to hash out plans for a new combined authority covering Newcastle, North Tyneside, Northumberland, Gateshead, Sunderland, and South Tyneside, governed by a mayor who would be elected in May 2024. 

A devolution deal securing in excess of £3bn in government funding over 30 years and potentially creating more than 17,000 jobs has been close to being announced for some time, but progress was held up by the collapse of Boris Johnson’s government.

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But the Local Democracy Reporting Service now understands that a final draft of a proposed deal has now been fixed and could be approved shortly by the incoming Liz Truss administration and local councils.

And, in a major new development, Durham may be set to join the deal too, with a leaked letter revealing that county leaders have been issued a deadline of mid-October to get on board.  Durham had been pursuing its own single-county devolution deal instead of joining a region-wide body, but sources say the government’s insistence that such an arrangement would require the election of a county mayor has proved a sticking point for the council’s coalition Lib Dem, Conservative and independent leadership.

But a letter sent by outgoing levelling up secretary Greg Clark to leaders in the six other council areas on September 1 confirms that he has “agreed to keep open until mid-October the option of Durham joining the new arrangements set out in our proposed deal” and that civil servants are “in contact with officers in Durham on the terms by which Durham may join”.

It is understood that the government is willing to increase the financial size of the proposed devolution deal, touted as the most generous in England, so that the per capita value of the six-area proposal is extended across Durham too, which would overcome a key stumbling block to securing local political support.

Were a deal for the seven council areas to be agreed, it would mark a return to regional alliance that was close to a previous devolution package six years ago. That deal fell apart at the eleventh hour in 2016 amid a split among the area’s Labour-run establishment and Newcastle, North Tyneside, and Northumberland subsequently broke away to form their own North of Tyne Combined Authority (NTCA).

It is thought that the new settlement would grant the North East the “full suite of powers” already available to mayors in other parts of England that boast more substantial devolution deals than are currently held by the North of Tyne.  That would include the ability to bring bus services back into public control and set their ticket fares at cheaper levels, a £900m transport funding package up to 2027, an investment fund of £35m per year, a yearly £44m budget for adult education and skills, and “major steps” towards the North East reaching net zero emissions.

However, bringing Durham into the deal would derail the prospect of the new mayor’s role being merged with the Northumbria Police and Crime Commissioner, as the two would no longer cover the same geography.

In his letter, Mr Clark tells the council leaders: “I know you are keen to proceed at pace to progress the agreement this autumn and have arranged local governance meetings in September to allow for the deal to be ratified. I am confident that, with the progress we have made, this is on track, and we now have a final version of the proposed text.  “Final decisions relating to the proposed deal, such as on announcement, will, however, need to be made after the 5 September by the next administration.”

North East leaders had been hopeful that the announcement of a deal was edging closer before a mass revolt from ministers in July that forced Boris Johnson to resign and led to Michael Gove being sacked from the levelling up brief.

There was also some optimism that the pact could be finalised before the new prime minister was appointed this week, as had been the case with devolution deals for both North Yorkshire and the East Midlands, but that failed to materialise.

Nevertheless, it would appear that the only roadblocks at this point are either a dramatic change in government policy from the Truss administration or a 2016-esque crack in local political support for the deal.

Labour’s North of Tyne mayor, Jamie Driscoll, urged Ms Truss and whoever succeeds Mr Clark as levelling up secretary to get the “strong” deal done as soon as possible, saying he was “sure we will make progress”.

He added: “If they [Liz Truss’ government] are serious about doing this for the North East then they have to sign off this big investment deal.”

Coun Amanda Hopgood, leader of Durham County Council, said: “We continue to work with government to look at potential devolution options for County Durham. We hope to be able to announce the outcome of these discussions soon.”

Once a deal is agreed by political leaders across the North East, it would then be subject to a two-month public consultation. After that, a Parliamentary order would then be required to formally establish the new body in time for an election to be held in 2024.

In a joint statement, Mr Driscoll and the leaders of the six councils other than Durham said they had taken a “major step towards securing new and significant decision-making power and investment for our region”.

They added: “We are pleased that we have successfully negotiated a proposed deal which matches our ambition for this region.

“This is an important and exciting milestone in our journey and we will now engage with residents, colleagues, business and other stakeholders to move the provisional deal to the next stage.”

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