Inner-city agency faces struggle for cash: Colin Brown sees a bumpy road ahead for a former Cabinet minister's new vehicle for urban renewal

PETER WALKER, the former Cabinet minister, faces a battle with the Treasury to win extra funds for his agency to help the inner cities, which will be launched today by Michael Howard, the Secretary of State for the Environment.

Mr Walker, the former Secretary of State for Wales, will take over the running of the Urban Regeneration Agency late next year with a budget expected to be around pounds 250m a year.

John Redwood, Minister of State for the Environment, will outline the proposals in a consultation document to urban development corporations today. They include control over planning and powers of compulsory purchase.

The launch of the agency will enable the Government to counter criticism, after the recent riots in Bristol, that it is not doing enough to overcome the alienation of the 'under-class' in the inner-city areas. But the success of the agency will depend largely on its ability to stimulate private sector investment.

Mr Walker's agency will take over Derelict Land Grants and City Grants of more than pounds 100m a year, but that money is from existing budgets. The annual battle over spending will determine whether the agency can get increased grants to ease the problems of the inner cities exacerbated by the recession. Ministers are therefore pinning much of their hopes for the project's funding on land sales by English Estates, the 'land bank' formerly controlled by the Department of Trade and Industry, which will be taken over by the agency and could produce an additional pounds 150m a year.

Mr Walker, a renowned 'wet' in the Thatcher Cabinet who was awarded a life peerage in John Major's dissolution honours list, was given by the task of running the agency by the Prime Minister because of his success in attracting investment into Wales, where he had wide-ranging powers to offer potential employers grants for retraining the workforce and for building factories and roads.

Ministers believe that over a five-year term, the funding of about pounds 1.2bn from the public sector could be boosted to pounds 5bn with private investment. The Treasury is likely to argue this in negotiations over the agency's funding for future years.

Putting a 'wet' with a reputation for spending in charge of the agency is creating a potential source of tension within the department with Mr Howard and more Thatcherite ministers, such as Mr Redwood, but these fears are dismissed by ministers, who believe Mr Walker will inject the enterprise into the inner cities which he brought to Wales.

Mr Redwood, who is carrying out a review of local government structure, yesterday said creating regional government would cost pounds 4bn, the equivalent of 2p on the standard rate of income tax.

He said the Government was against creating regional authorities, in spite of pressure from the European Commission for member states to form regional councils to qualify for regional grants. 'The primary purpose of the regional EEC and social funds is to take money from taxpayers here and to promote schemes in the Community's poorest areas. It is difficult to demand more money for Portugal or Spain when we are looking for tight control on public spending at home,' Mr Redwood told a conference of local authority associations.

Mr Redwood said the case for regional government for London was undermined by local loyalties to the boroughs. The Government had set up a Cabinet committee for London-wide issues, and was creating a private London forum to bring business to the capital.