Government plans to spend hundreds of millions of pounds to safeguard jobs at Rover and other British-based companies are in jeopardy because of a dispute with the European Commission.
Brussels officials have banned the Government from using British taxpayers' money on regional aid because they have refused to approve the new map showing which areas of the country would qualify. In order to target aid on the most deprived areas, the Government wants to base the map on local authority wards rather than entire council areas.
But the Tories have accused Labour of "gerrymandering", saying this approach would target aid on Labour's traditional heartlands, including the North-east and Scotland, which are heavily represented in the Cabinet with 11 of its 22 ministers. To the Government's embarrassment, the criticism has now been echoed by Brussels.
Mario Monti, the EU's competition commissioner, has warned the Government that it cannot pay out any aid, including the £152m earmarked for Rover's Longbridge plant, until he approves the map. This could mean a further delay in getting the money to Rover even if he approves the proposed grant.
The map was due to be submitted to Brussels a year ago and to take effect in January. With no end in sight to the wrangle, some £100m of grants to create or safeguard jobs could be at risk this year.
John Redwood, the former shadow trade and industry secretary, said last night: "The Government has made a complete mess of the whole thing. It has jeopardised the Longbridge works by trying to gerrymander the national regional assistance map.
"Ministers are more interested in in-fighting amongst themselves than sorting out the problems of British industry," he added. "They kept saying Rover's problems were nothing to do with their economic policy and a strong pound, but it now emerges that they are everything to do with it. The Government has led Rover and BMW on a merry song and dance."
He said the row over the map had "poisoned" the Government's relations with Brussels and made it harder to win its approval for the Rover aid.
But the Department of Trade and Industry dismissed Mr Redwood's claims as "rubbish". It admitted the Rover aid could not go ahead until the map won the approval of Brussels, but was confident agreement could be reached despite the continuing deadlock.
A government source said the delay in securing approval for the £152m was not a big issue for BMW, which is today expected to reveal bigger than expected losses at Rover of £1.3bn over the last two years.
Ministers denied the charge of rigging the map to help the Labour heartlands. They said that using entire local authorities would stop aid reaching London boroughs with pockets of deprivation surrounded by affluent areas.