The Government's decision to give substantial new powers to London's mayor is good news. Ken Livingstone and his successors will have greater strategic control over skills, housing, planning and a range of smaller issues. Livingstone hasn't got everything he asked for, but his new powers will help him to expand London's economy.

The Department for Communities and Local Government's review of the Greater London Authority (GLA) is complex, and fairly technical. Plus, there's been little public enthusiasm - and outright hostility from boroughs and the London Assembly. So why should we get excited?

First, the mayor's expanded powers give him more scope to boost the city's economy. Second, the new arrangements reduce the number of quango-controlled strategies - and enhance democratic accountability. But most importantly, communities secretary Ruth Kelly's announcement shows that Whitehall is ready to devolve power to elected mayors. Manchester and Birmingham should take note.

What Livingstone got

The review has a broad sweep, covering everything from rubbish collection to policing. But in practice, attention was focused on the 'big four': skills, waste, housing and planning. The GLA made some big asks here.

What's happened?

Livingstone has done well, winning substantial new housing powers, and getting most of what he wanted on planning and skills. In particular, he'll now have full planning authority for strategic sites across London - although 'strategic' has yet to be fully defined. He will also lead a new Skills and Employment Board, setting budgets and priorities for workforce development. In future, this board could get control of Jobcentre Plus budgets too. And in a range of other policy areas - such as health, culture and water - Livingstone gets greater control over agency strategies.

But the mayor didn't get his way on waste. Though he got stronger waste planning powers, and a London-wide waste and recycling forum to lead, he failed in his bid for a single London waste authority. Is this bad news for Livingstone? Maybe not. As part of the Department of Trade and Industry's energy review, the mayor now has unique powers to tackle climate change in London. The GLA now has a duty to help London mitigate and adapt to climate change, and will develop a statutory strategy to cut emissions and promote renewable energy.

Overall, the mayor should be happy with the review: it boosts strategic leadership, improves lines of accountability and cuts institutional clutter.

Limits to devolution

But why didn't the Government test the limits of devolution further?

First, remember Whitehall politics. Kelly's department sponsored the review, so it's not surprising that Livingstone got almost everything he wanted on housing and planning. Other departments are less keen to devolve, because giving up control could threaten national structures and targets. Seen in this light, the mayor's new powers over skills are a significant shift.

Second, Livingstone's visibility may have worked against him. Ironically, a lower-profile mayor might have got more. Public spats with Evening Standard reporters, property investors the Reuben brothers and the US ambassador have not endeared the mayor to ministers, who worry about him wading into other sensitive issues.

Third, some areas weren't easy to call. For example, there was no clear evidence that a single waste authority would be better than current arrangements, so ministers have responded with a complex set of compromise measures.

Finally, there is the delicate question of balance. Announcing the review, Kelly stressed the need "to achieve the right balance of powers between national government, the GLA and the London boroughs". In practice, ministers have devolved down on housing, skills and climate change and devolved up on planning.

As a result, the opposition doesn't quite know what to think. Compare the outraged reaction from boroughs and the Conservative party - which complained that the mayor's new powers were "dictatorial" - with the Liberal Democrat assertion that the Government has "kept Ken Livingstone in check".

Certainly, the assembly has got little out of the review. Ministers have concentrated on sharpening the assembly's scrutiny function, rather than in building up the legislative role that members were looking for.

Kelly's carrot

What does this mean for other cities? The GLA review sends out some clear signals to Birmingham, Manchester and the rest. Kelly has used the review as an early show of strength, settling disputes and driving devolution forward. There was talk of combining the review with the delayed local government white paper. Now the Government's thinking is out in the open.

Ministers recognise the economic importance of conurbations, and know that city-regions need more freedom over skills, transport, housing, planning and regeneration. But to get new powers, big cities beyond London will need new elected leadership, most likely city-regional mayors.

Kelly says that existing core city plans are "too weak". Expect the white paper to lay out a clear offer: more powers for city-regions, in return for more mayors. The question is, will anyone go for it?

What powers did Livingstone get?

Housing

What he wanted: Strategic control of housing and affordable housing funding

What he got: London Housing Board's powers, broad control over affordable housing funding. The Housing Corporation will deliver the latter

Verdict: Livingstone wins

Skills

What he wanted: Single skills and workforce development body led by mayor

What he got: Chairs new Skills and Employment Board. Sets statutory skills strategy, delivered by pan-London Learning and Skills Council

Verdict: Partial win

Planning

What he wanted: Direction over borough plans, ability to pass as well as reject major projects, TfL to benefit directly from section 106 deals

What he got: Power to direct changes to local development plans, full planning authority and section 106 powers over 'strategic sites'

Verdict: Partial win

Waste and energy

What he wanted: Single waste authority, enhanced waste planning powers

What he got: Enhanced waste planning powers, leads Waste and Recycling Forum

Verdict: Livingstone loses, but gets climate change powers

Functional bodies and staffing

What he wanted: Power to appoint TfL, police and fire boards. Greater hiring power over Greater London Authority staff

What he got: Greater say over TfL and fire authority board appointments. Appoints chair of Metropolitan Police Authority, arts and culture bodies. Jointly appoints GLA's three statutory posts

Verdict: Livingstone wins - Assembly loses.