An “Eastern powerhouse” of Norfolk, Suffolk, rural Cambridgeshire and Peterborough is likely to be unveiled, the Financial Times understands. Cambridge city is, however, unlikely to participate in the new arrangement, according to people familiar with the discussions.

A second grouping, consisting of Southampton, Portsmouth, the Isle of Wight and parts of rural Hampshire, may also be sealed in time to be announced by George Osborne. Cumbria, too, could get the go-ahead next week.

But the announcements will fall short of the chancellor’s original hopes, amid a growing rebellion by MPs and councillors in the Tory shires. Some are said to believe they are being pushed to agree deals to meet a political timetable even if they lack a clear regional logic.

Mr Osborne, who has placed the devolution of power at the centre of his attempt to rebalance the economy, is now under mounting pressure from his own side to slow the pace.

One senior Conservative MP said he and his colleagues were “very angry” that a plan conceived for metropolitan areas was being expanded to the rural Tory heartland. “They were given all these assurances that it was just a solution for the Labour northern cities, it wouldn’t be applied to them, but now it is being applied to them,” added the MP.

North Midlands, which groups the districts and county councils in Nottinghamshire and Derbyshire, was thought closest to a deal. But in recent weeks six of the 19 councils that signed up have pulled out.
Two have opted to join the Sheffield city region deal, one has applied to join Greater Manchester while three rural Conservative-run councils have left, fearing domination by the big cities and, according to one person familiar with the situation, the potential advent of a non-Tory mayor.
“They are not all that enthused about being swallowed up by two big county councils in the two cities,” said Ken Clarke, former chancellor and MP for Rushcliffe.

Mr Clarke has emerged as a key opponent of Mr Osborne’s plans, though he says he is “open to persuasion”. He said the North Midlands deal was mired in confusion and that few MPs, whether Conservative or Labour, were in favour of it.

Progress has also stalled in Yorkshire. The five Labour-run metropolitan authorities of West Yorkshire have a history of working together and believed they could mount a coherent bid. A second includes four neighbouring district councils that form the Leeds city region.

But 13 Conservative MPs have lobbied for a “Greater Yorkshire” bid covering the Tory-supporting rural north and east, as well as Hull.
Conservative-run North Yorkshire has refused to devolve transport powers to Craven, Harrogate and Selby, which would allow them to implement a Leeds city region bid.

Harrogate voted to back that bid regardless in a heated meeting last week
Don Mackenzie, a North Yorkshire county councillor, told the meeting: “The reason Greater Yorkshire is not going forward is the leaders of the Leeds city region do not want it to go forward as it would lead to a Conservative mayor.”

The chancellor’s devolution programme is stirring increasing resentment among his own backbenches. Kevin Hollinrake, a Conservative MP who represents the North Yorkshire seat of Thirsk and Malton, said there was “a real concern” that devolution deals could “cherry-pick” parts of a region and “leave the rest out on a limb”.

The reallocation of powers in areas such as transport to devolved mayors risked eroding the role of existing local government structures, he said. It was “a huge potential issue for the county councils” — nearly two-thirds of which are Conservative-controlled.

The Centre for Cities has also warned Mr Osborne that he should restrict devolution deals to big cities.

“If the primary aim of devolution is to improve the economic performance of the national economy as rapidly as possible then the ever-growing importance of cities means that the devolution agenda must retain an urban focus,” Alexandra Jones, its chief executive, wrote in a letter to Mr Osborne seen by the FT.

She added: “It is important that the geography of the deal reflects the functional economy as much as possible rather than encompassing too broad a geography.”