The Red Wall areas, plus Lincolnshire, were in line to receive the cash because they have become relatively poorer since the last spending round which finished last year.
The government pledged to match lost EU funding after Brexit – to “tackle inequality and deprivation”, it said – but is now accused of a second broken promise.
The National Enterprise Network, an organisation providing advice and finance for growth opportunities, said it was the latest blow to job creation after the loss of other investment grants.
“Our network cannot support economic growth or fulfil its potential with the existing patchwork of funding,” chairperson Alex Till told The Independent.
More than 100 groups – ranging from local councils to charities and businesses – raised the alarm over the low level of grants from the Shared Prosperity Fund (SPF).
Now the chair of the SPF all-party parliamentary group, Stephen Kinnock, has attacked “smoke and mirrors” over funding, alleging: “It seems that, rather than levelling up, the UK government is intent on levelling down.”
In a letter to Mr Gove, the Labour MP has urged the levelling up secretary to intervene – pointing out that Cornwall is receiving the higher funding.
Yet Cornwall (with a GDP per head of 70.9 per cent of the UK average) is now more prosperous than either South Yorkshire (70.3 per cent) or Tees Valley and Durham (67.3 per cent).
Steve Fothergill, national director of the Industrial Communities Alliance, bringing together councils in mainly former coal and steel areas, said: “It’s not that Cornwall doesn’t deserve its money. It’s that, in the absence of Brexit, other parts of England would now be lined up to receive the same high level of EU funding as Cornwall. There is a very great risk that these areas will now be treated less favourably.”
Mr Kinnock’s letter reads: “South Yorkshire, Tees Valley and Durham and Lincolnshire would have qualified for very substantial additional EU funding because of their deteriorating GDP figures.
“These three areas now run the risk of being treated much less favourably than would have been the case in the absence of Brexit.”
Mr Kinnock adds: “The potential losses are huge – over a seven-year programming period, perhaps as much as £900m for South Yorkshire and £750m for Tees Valley & Durham.”
The row follows the Budget announcement that the SPF – the replacement for EU structural funds – will receive just £2.6bn over three years, not the £4.5bn needed to avoid overall losses.
It comes on top of many existing criticisms of the SPF, which had already been delayed for one year – costing poorer areas of the UK around another £1.5bn.
Hard-pressed local councils and other groups were also required to compile bids, which led to them “wasting time and resources” on 600 failed applications, Mr Kinnock’s letter says.
The calculation of £1.65bn of lost funding has been reached from the population size of South Yorkshire and Tees Valley and Durham – noting that Cornwall receives around £650 per head more.
The department for levelling up, housing and communities described the claims of a loss of funding as “unfounded”, but without explaining why.
“The UK Shared Prosperity Fund – worth over £2.6bn – will, at a minimum, match the size of EU funds in all nations, helping people across the UK to access opportunity and better their skills,” a spokesperson said.
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