A plan to grant Ken Livingstone the power to raise hundreds of millions of pounds for transport projects through issuing bonds is under consideration by ministers.
Whitehall officials say private discussions between the Mayor of London and the Treasury are aimed at striking a "constitutional settlement" between the Government and the capital to allow the Greater London Authority more leeway in financing major schemes.
Such a deal could set a precedent for projects elsewhere in Britain and mark a flexible approach to funding public projects by Gordon Brown, the Chancellor, whose hardline policies are often blamed for hindering developments. Mr Livingstone hopes new initiatives such as the East London extension and the delayed Thameslink 2000 could be funded through bonds.
Some observers believe the £10m Crossrail route, another trans-London rail link, could be financed, at least partly, through interest-bearing securities.
It is understood that the mayor could set the price of bonds at a level which would allow individual voters, as well as investment houses, the opportunity to invest.
The proposal comes in the wake of Mr Livingstone's readmission to the Labour Party and some observers believe it may have been part of a unspoken deal.
A senior Treasury official said: "The current constitutional settlement is an unhappy compromise between central control and local discussion.''
Mr Livingstone can issue a small amount of bonds, but to raise money on a substantial scale would require primary legislation. It would also need the agreement of Alistair Darling, the Secretary of State for Transport, and John Prescott, the Deputy Prime Minister, who is responsible for local government.
Mr Livingstone, who will stand for re-election as mayor in the summer, has recently taken a more supportive line towards the Chancellor. Four years ago he urged the Government to dismiss Mr Brown.
Although an agreement over bonds would show a more liberal approach to public finance by the Treasury, it would also allow itto blame Mr Livingstone if projects went awry. It is not clear whether the bonds would be part of public debt, something the Chancellor will be keen to avoid.
Mr Darling has said he would consider a degree of devolution. He said it might be possible to give the Scottish and Welsh parliaments, as well as regional passenger transport authorities, more responsibility.Reuse content