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A new high-speed rail link across the Pennines - dubbed "HS3" - could slash journey times for commuters between cities such as Manchester, Leeds and Hull.
However, the idea would saddle taxpayers with a bill for £7bn.
ITV News Business Editor Joel Hills reports:
David Cameron said a third high-speed rail line in the north, known as HS3, was about "connectivity" not just faster journey times.
"It's recognising that if we link up the great cities of the north of England they could become a northern powerhouse to rival the dominance of London," the Prime Minister said.
He added: "It's a fundamental rebalancing, it's part of our long-term economic plan and we're only able to do it because we've got a successful, growing economy."
The RMT union has said that it is "cynical in the extreme" that the government is "threatening to devastate jobs and services" whilst launching proposals for a third high speed rail link in the north of England.
Proposals for a third high speed rail link in the north of England are "little more than a costly vanity project, according to a leading think tank.
It would be better to spend money on smaller schemes rather than "creating headline-grabbing policies", said the Institute of Economic Affairs head of transport Dr Richard Wellings.
Dr Wellings, a stern critic of HS2, said:
Following the latest report on HS2 and HS3, Sheffield City Council Leader Julie Dore has expressed her disappointment, claiming the project appears to be centred around speed and not economic growth.
Plans for another high speed rail link dubbed 'HS3' is the key to creating Northern jobs and growth says a Manchester MP.
Lib Dem's member for South Manchester John Leech has called on the government to implement the Higgins report on HS3 on the same timetable as HS2 plans.
The report, published today, calls for a HS3 scheme to connect the north’s great cities, cutting journey times, boosting businesses and create more jobs and security for people in the north. The journey between Manchester and Leeds could be cut from 55 minutes now to between 26 and 34 minutes.
Proposals for a "HS3" rail link to improve east-west rail journeys across northern England are more than just about "eye-catching" journey-time reductions, according to the boss of HS2.
The scheme, which could cost around £7 billion, was "not just a single project", said HS2 Ltd chairman Sir David Higgins.
He has put forward the HS3 plans in a report incorporating further plans for phase two of the £50 billion HS2 high-speed rail project.
Backed by Prime Minister David Cameron and Chancellor George Osborne, HS3 would mean journey times between Leeds and Manchester could almost be cut in half to around 26 minutes.
For phase two of HS2 Sir David's recommendations include:
- To continue with the planned route into Manchester city centre via the airport - keeping open the option to add a new airport station
- Need to review the best station solution for Leeds to include provision for increased east-west services through the city
- The HS2 line should be extended to Crewe by 2027 - six years earlier than originally proposed
- A new station at Sheffield Meadowhall remains the best way to serve the wider South Yorkshire region, though Sir David recognises Sheffield continues to argue for Sheffield Victoria
- That the East Midlands hub should be near the proposed site at Toton
Former deputy prime minister John Prescott has welcomed a report proposing a high speed rail link between Leeds and Manchester, but said his party first recommended the plans a decade ago.
Ministers who have given the go-ahead for a third high-speed railway link have admitted they do not know how much the new project could cost.
Officials told The Daily Mail it was "too early" to put a figure on it, although the Chancellor previously estimated it would set the government back up to £7 billion.
But there is speculation HS3 could be even more expensive per mile than HS2.
Northern council chiefs have welcomed the announcement, which could see journey times between Manchester and Leeds slashed by more than half from an hour to just 26 minutes.
However, rail protesters claim the government is "throwing good money after bad".
Transport Secretary Patrick McLoughlin has the development of the HS2 high-speed railway project linking northern cities will "benefit the UK overall".