A historic devolution deal for the North East could help ease the spiralling financial burden faced by struggling local councils, leaders hope.

The multi-billion pound agreement, which will see a new mayor elected in May to represent roughly two million people across Tyne and Wear, Northumberland, and County Durham, is due to be finalised in the coming weeks.

While the deal brings with it a raft of decision-making powers and control over funding that the region has not held before, its much-heralded arrival comes at a time when the seven councils involved in its creation are facing a bleak financial picture of their own.

There are major worries for cash-strapped town halls across the country, faced with major financial dilemmas amid escalating demand for services like social care and heavy reductions in Government funding since 2010.

Some councils have already effectively declared bankruptcy, with Middlesbrough the latest to warn that it needs emergency support within weeks to avoid that scenario, while North East councils have outlined plans to slash their spending by tens of millions of pounds in the next year.

At a Newcastle City Council scrutiny meeting on Tuesday (January 9), Liberal Democrat Gareth Kane asked whether the new North East Mayoral Combined Authority (NEMCA) could help ease the “heavy budget pressure” being experienced by councils.

While the combined authority is not replacing councils and will not take responsibility for funding any of their frontline services, Cllr Kane asked if having Newcastle, North Tyneside, Northumberland, Gateshead, South Tyneside, Sunderland, and Durham working more closely together presented a chance to avoid duplication of work and thereby produce savings.

Janice Gillespie, chief finance officer for the existing North of Tyne Combined Authority, replied: “There is always an opportunity for collaboration. A lot of our local authority colleagues do work collaboratively, but I do get what you are saying in terms of a more firmed-up collaboration.

“We have not reflected anything like that in our current budget proposals in terms of what we might see in the future. [But] I would hope that the combined authority, in whatever it does, finds a way to help alleviate the pressure on local councils in some way.

“For example, the North of Tyne Combined Authority funds posts in each local authority to find inward investment opportunities – so there are costs that the combined authority can support.”

Matt Wilton, Newcastle City Council’s assistant chief executive, added: “It is prudent at this point in time not to go too far in estimating or scoping specific areas or collaboration and whether there might be a financial saving or efficiencies for the constituent authorities.

“But the ambition and commitment is there to work more collaboratively.”

Cllr Kane also asked whether the prospect of one of NEMCA’s constituent councils going bust presented a risk to the new authority.

The seven councils will put in roughly £700,000 a year combined towards NEMCA’s running costs 

Ms Gillespie said there would be “actions to mitigate that risk”, but admitted she would “not be popular” if it was proposed that six of the councils had to pay in more money to cover for one that went bankrupt.