Large cities will be able to decide by referendum if they want to be governed by an elected mayor under new Labour plans.

It was thought Number 10 had abandoned the idea to extend directly elected mayors outside of London.

But the government now believe Ken Livingstone's example could be followed in cities such as Birmingham, Manchester and Liverpool. 

Meanwhile, business leaders are supporting Livingstone's claim that the Capital could lose its "competitive edge" unless it tackles skills shortages, the high cost of workspace and high housing costs.

In a joint statement to be published today, the London CBI, London Chamber of Commerce and other key organisations say the rest of the country's fate is closely bound up with London's, since the Capital is "the gateway to the rest of the UK for direct investment, tourism and trade".