The regions are set to lose about £3 billion in EU funding used to help businesses and to improve infrastructure; some predict that their development budgets will drop by 80 per cent.

Because the new member states have much lower incomes than existing members, the regions will no longer officially be considered poor. Of the four that presently receive the most money — West Wales, Merseyside, South Yorkshire and Cornwall — only Cornwall will still be considered poor enough to be eligible for funding.

Stephen Barber, secretary of the English Regions Network, said: “It’s a big issue and it’s going to happen.

“It will have a huge impact on us, there is no doubt about that. The impact will be on jobs. There will be fewer people trained and fewer roads built.”

Stephen Howell, head of the North of England office in Brussels, said: “Brussels money is very important. It’s been one of the main funding streams in regenerating the North East. If we had 40 per cent cut, we could do 40 per cent less work. If you get less money, you can address problems less effectively, so we’ll continue to be disadvantaged.”

The West Midlands, which has received £551 million over a six-year period, is braced for a possible 80 per cent loss of funding. One of the worst- affected areas will be Yorkshire and Humberside, which has received £1.1 billion over six years. Local authorities claim that the money has created or protected 320,000 jobs. It expects funding to be halved.

A government spokesman said: “We have to accept that enlargement of the EU with ten poorer countries joining will make UK regions relatively less poor, and that has implications for funding. However, there are huge benefits from enlargement for all of us, not least improved trading and economic prospects.”

In the six years to 2006, Brussels will have given Britain £9.9 billion for development, out of which £7 billion goes directly to regions and £2.9 billion to national projects. The Government accepts that it will lose at least £3 billion over the next funding period, which is 2006 to 2013.

Under present EU rules, regions get the most valuable “Objective 1” funding if they have incomes of less than 75 per cent of the EU average. In Merseyside, for example, incomes are 71 per cent of the present average, but post- enlargement Merseyside will have an income of 78 per cent of the average. In most of Eastern Europe incomes are less than half the present EU average, and just one third in Latvia and large parts of Poland and Hungary.

Last week the European Commission announced €20 billion (£13.8 billion) of aid for Eastern Europe over the next three years.

Both Brussels and the British Government agree that the poorer UK regions must get some transitional relief, although the impact will be limited. The Government accepts that, even with transitional relief, British regions will lose 50 per cent of their Objective 1 funding and a third of all other funding after 2006.

Negotiations over the new method of regional funding are just starting. The European Commission has argued that member states should be far more generous so that it can continue to give development funding to poor regions in both Eastern and Western Europe.

The Commission will unveil its formal proposals next month, but Michel Barnier, the Commissioner responsible for regional funding, has said already that he wants to increase the total development budget from €30 billion to €50 billion a year, with half the money ringfenced for the existing EU regions.

Gordon Brown wants to restrict the money that he gives to the EU for regional aid and to fund development in the UK’s poorer regions directly from the Treasury. The Chancellor said that the richer EU nations should accept responsibility for their own development.

Most British regions would prefer to be funded from Brussels than from the Treasury. “You are given funding as a result of objective criteria, and you have the certainty of being given it for a six-year period so you can plan,” one UK regional official said. “But if it comes direct from Whitehall it all depends on politics, and it could all be taken away at any moment to be spent on health or education.”

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