THE North-South divide will widen because of the government's £81bn of spending cuts, Mr Cameron was warned yesterday.

Job losses and benefit reductions will savage Northern communities while capital projects, such as Crossrail and the Tube upgrade, help the South, a report by IPPR warned.

The think-tank urged ministers to "radically devolve power and allow the northern regions to forge their own economic future", to try to head off the looming crisis.

The study found the North-East would lose 4.1 per cent of its jobs over the next four years, compared with 3.1 per cent in London and the South-East.

Ed Cox, director of Ippr North, said: "With so many people employed in the public sector, or in businesses reliant on public funding - plus a higher proportion of people already out of work - the North is undoubtedly in for a tough time over the next few years.

"If the coalition is serious about localism then they must radically devolve power and allow the northern regions to forge their own economic future, rather than sticking to the current system where too many people's futures are decided by a few men in Whitehall."

The study estimated that, in addition to the 490,000 public-sector job losses expected over four years, at least a further 400,000 positions will be lost at companies that do business with the government.