The 70-mile canal, to be called the Western Water Highway, would be wide enough to take freight ships from Ireland and North America across England from Port Carlisle in Cumbria to Newcastle and on to European markets.
The scheme, which could create 300 construction jobs, has been leaked by Labour members of Cumbria County Council. It is now to be discussed by the Northern Assembly, a forum for the region's local authorities.
As the scheme was unveiled, a wider plan was launched to put freight back on the canals and rivers of Britain and it will be presented at the forthcoming party conferences.
The idea is to extend existing waterways or even open new ones to make use of new technology which could make freight by water economically viable. While the common perception is that waterborne transport has all but disappeared, in fact one-quarter of freight travels by water, much of it on internal routes rather than coastal shipping.
The Inland Waterways Association (IWA) says there is enormous scope to make better use of water for bulk transport, but it requires planning and a commitment by government. The IWA wants the Government to adopt the target recommended by the Royal Commission on Environmental Pollution in 1994, to increase waterborne freight by 5 per cent per year.
David Hilling, of the Inland Shipping Group, said at the launch held next to the River Thames in London: "With pressure on the roads growing every day, the Government must consider better use of the waterways if it is really interested in more sustainable transport." As he spoke, several barges carrying rubbish from the City passed by, illustrating that much water freight goes unnoticed.
The IWA has identified seven schemes where modest investment in canals or docks could lead to a sharp increase in water transport. These include freight terminals at Warrington, the West Midlands (on the Severn waterway), the East Midlands (via a new waterway from the Wash), west London and West Yorkshire.
The IWA will tell politicians that the Government should give responsibility for waterways to the Department of Transport instead of the Department of Environment and undertake feasibility studies for all these schemes.