The shadow chancellor unveiled radical plans to address regional funding imbalances by creating a new No 11 post outside of London to boost infrastructure projects in the north.
The planned overhaul of the Treasury comes after Mr McDonnell also suggested moving parts of the Bank of England to Birmingham, in a bid to rebalance the economy.
“We’re going to break up No 11,” the shadow cabinet minister told the Manchester Evening News. “Part of No 11 is going to the north.”
Shaking up the Treasury would be one of his first acts in government, Mr McDonnell said, arguing that the department needed to acknowledge the “mistakes of the past”.
The new unit will be known as the National Transformation Fund, with a decade-long infrastructure pot, which could be used to bolster the northern transport system.
He said: “If we’re going to address regional inequalities, the NTF is one of the big vehicles for doing that.
“Large amounts of that money will go to the north, so therefore, the best thing to do is to put the administrators in the north.”
Mr McDonnell said he was meeting all of the region’s mayors in the coming weeks to iron out the plans.
“It isn’t just relocating the unit, it’s relocating decision-making as well,” he said.
“But actually the relocation of parts of No 11 I think is significant, because you do want the civil servants meeting up with businesses and civic leaders and others.
“People think it isn’t important, that it doesn’t matter where they’re located. Oh yes it does. People need to know what lives people are living in those areas.”
It comes as Labour has been seeking meetings with senior mandarins to discuss its programme for government amid speculation of a possible general election in the autumn.
Mr McDonnell recently revealed that Jeremy Corbyn was to ask the civil service to begin working up proposals for Labour’s Brexit plan, including a Final Say referendum.
However, relations with mandarins have become strained, after concerns from senior civil servants on Mr Corbyn’s health were leaked to the press.
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