Greater Manchester is set to introduce the first congestion charging scheme outside of London after transport secretary Ruth Kelly approved £3bn of funding for public transport in Manchester.
The government will lend £1.5M from its Transport Innovation Fund (TIF), specially earmarked for "imaginative" congestion tackling schemes.
The remainder of the £3bn must be raised by the Association of Greater Manchester Authorities (AGMA) and the Greater Manchester Passenger Transport Authority.
Once congestion charging is up and running in Manchester, the £3bn must be paid back by 2013 through revenue made under the scheme.
It is hoped that the multi-million pound initiative will ease congestion in the city, which the transport minister identified as "an increasing brake on the their ambition and prosperity"
Leader of the AGMA, Lord Peter Smith, said: "The economic case for these plans is clearly proven, if we take no action, bury our heads in the sand, and pretend congestion won't get worse, then we are risking our future, our prosperity and our jobs."
"Doing nothing is not an option."
Money from the TIF will be used to extend the Metrolink system with 30 extra kilometres of new routes to key locations such as the airport.
It will also fund a raft of improvements to the city's trains, bus and cycle networks.
Transport secretary Ruth Kelly said: "It is essential that we provide people with greater choice over how and when they travel, cut congestion on our roads and take the right decisions for our quality of life, the environment and the long-term health of our economy."
However, shadow transport secretary Theresa Villiers attacked the proposals saying Ruth Kelly was "bullying Manchester".
"Ruth Kelly is so desperate to push Greater Manchester into being a guinea pig for national road pricing that she is willing to stake her own parliamentary seat on it. At a time when fuel prices are at record high, and the Government is punishing drivers with sky high VED increases, Mrs Kelly is now going to hit low income earners in Greater Manchester with a 8 per cent tax on getting into work," said Villiers.
Campaign for Better Transport chief executive, Stephen Jones, defended Kelly's take on the proposals. He said: "The opponents of the scheme seem to ignore the fact that Manchester suffers from congestion now and this is likely to get worse, with real impacts on people and businesses. They have produced no positive ideas for tackling this congestion or for financing the extra public transport that is needed to give people real alternatives to driving.