An influential think tank close to New Labour has called on ministers to strip regional development agencies of their functions in England's big cities and hand them over to strategic authorities.

In a report titled City Leadership, the Institute for Public Policy Research says strategic authorities headed by directly elected mayors, like Ken Livingstone, should take over RDA responsibilities.

These functions would include economic development powers in conurbations and responsibility for transport. The report adds that city regional authorities should be able to set a 5% top-up business rate.

The study says the arrangements could be piloted in Birmingham and Manchester, two conurbations where RDAs now spend £1.2bn a year.

Dermot Finch, director of Centre for Cities, the part of the IPPR responsible for the study, said: "Unelected regional quangos are too big and undemocratic but local authorities are too small. Directly elected mayors will be controversial, but they provide a visible line of accountability."

The paper will be submitted to communities minister David Miliband, who is preparing a white paper on cities and the regions.

Finch interviews professor Richard Sennett of the London School of Economics in this month's Regenerate.