Road pricing, the Government’s favoured policy for dealing with congestion, has been roundly rejected in a referendum in Manchester. There now appears little chance of any pay-as-you-drive schemes being introduced for the next decade at least.

Manchester’s proposal for peak-time tolls of up to £5 a day was defeated by 4 to 1.

The scheme was rejected in separate votes held in all ten Greater Manchester boroughs. Just over a million people voted, 53 per cent of the 1.9 million balloted. Electors were not persuaded by the promise of £1.5 billion of government money for public transport and 10,000 extra jobs.

The result is undoubtedly a severe embarrassment for the Government, which has created a £2 billion Transport Innovation Fund to reward councils that introduce pricing schemes to reduce congestion.

The Department for Transport said last night that the rules of the fund would remain. They state that any council bidding for a share of the fund would have to introduce a form of “demand management”, such as congestion charging or a levy on workplace parking spaces. Other authorities that had been considering charging schemes distanced themselves from the policy after hearing the Manchester result.

Andrew Carter, leader of Leeds City Council, said: “We are doing a survey but we are a million miles from having any recommendations. I don’t like the blackmail and the bullying. The Government must rethink its policy of making the funding conditional on demand management.”

Cambridgeshire County Council, which has proposed a charge of up to £5 to drive into Cambridge in the morning at peak times, also retreated.Matt Bradney, the council’s cabinet member for infrastructure, said: “Now that congestion charging has been proven so unpopular, we think the Government should not be putting the handcuffs on us. We are urging it to change the rules of the fund.”

The West of England Partnership, representing four councils in the Bristol area, said it was still considering a charging scheme but the Manchester result “highlights certain challenges we might have”.

Labour politicians in Manchester, working closely with the DfT, had tried everything they could to make the congestion charge attractive to the majority.

Charging would not have started until 2013, by which time 80 per cent of the public transport improvements would have been completed. There would have been discounts for the low-paid and exemptions for areas that would have to wait longer for improved public transport.

Only one in ten people would have paid the charge and no drivers would have been affected in two thirds of households. A spokesman for the “yes” campaign blamed the downturn in the economy for the strength of the “no” vote.

“People were not willing to embrace an additional charge when they were worried about their jobs,” he said, “even though only a small minority would have paid.”

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