North's economy is worse than Chile's, says study

The Government was forced on to the defensive over the North-South divide yesterday after a report claimed to prove "conclusively" the scale of the gap between rich and poor regions. The Cardiff University study said it found London and the South-east were powering the economy, while such areas as the North-east were performing worse than Hungary, Chile or Israel.

The government-sponsored report came as ministers were accused of endangering jobs in trying to "play politics" with the regional aid programme. In what the Tories called another blow to Stephen Byers, the Department of Trade and Industry announced a revised assisted-areas map for European Union aid after Brussels threatened legal action.

But it was the Cardiff report, with claims of "widespread deprivation and misery" in the North, that most upset Downing Street. The research, by Robert Huggins, said the DTI had statistics to show the South was doing better at the expense of the North but was afraid to compile the information "for political reasons".

London came top in the survey, followed by the South-east and South-west, then Midlands areas. It finished with the North-east, including Tony Blair's Sedgefield constituency, at the bottom of the pile.

The table of competitiveness shows how regions rank, with the average expressed as 100: 1, London 115.5; 2, South-east 105.6; 3, South-west 100.8; 4, East 100.8; 5, East Midlands 96.1; 6, West Midlands 95.5; 7, Scotland 95.1; 8, North-west 94.5; 9, Northern Ireland 93.7;10, Yorkshire and Humberside 93.4; 11, Wales 90.7; 12, North- east 88.8.

The Prime Minister's spokesman said the Government was trying to build "overall economic stability that gives everyone the chance to share in the nation's prosperity".

But Dr Huggins said in his report: "An analysis such as this is a vital means of identifying those areas of the UK that are becoming so economically uncompetitive that the end result is widespread deprivation and misery for the people who live there." The report, sponsored by the Government's Economic and Social Research Council, says firms cannot be expected to relocate in large numbers to outer-lying regions and calls for "new economic development policy initiatives" to attract similar knowledge-driven firms to the areas.

The Government was further criticised when the DTI announced its new regional-aid map in response to European Commission demands that it drop an earlier version. The Tories said the the aid was ruled illegal because it tried to benefit small Labour areas at the expense of Tory and Liberal Democrat areas. The new map drops many areas in east England and includes the Sedgefield constituency.

If the new map is approved, £250m a year will go to areas in the form of grants to attract new investment, raise skills levels and create jobs.