Sending dough to Newcastle proved too difficult a task for Hazel Blears, it seems. The fog may well be upon the Tyne — all the cash has gone under Lyme.

If the Staffordshire market town (pop, 74,000) was stunned to receive a Government regeneration handout of £2.7 million, it is not letting on. “It was a large amount,” Simon Tagg, council leader of Newcastle-under-Lyme Borough Council conceded, “but we assumed it was in recognition of the work we’ve done to encourage business in the borough.”

Not exactly. The truth, the Department for Communities and Local Government admitted yesterday, was that it was meant for Newcastle upon Tyne (population 260,000).

The regional capital of the North East (186 miles and 3.29 hours away by car, according to the AA) is not amused. John Shipley, the Liberal Democrat leader of Newcastle upon Tyne City Council said: “It was an astonishing error by a Whitehall department to confuse the two Newcastles.” The cash came from money to be given back to councils that had increased the amount they took in business rates. The error came to light in Tyne and Wear after council officials there complained that they had not received a fair settlement — for the second year running.

A Communities and Local Government spokeswoman said: “This is a regrettable error, and we have taken action to rectify it. We are working closely with the councils involved, and are taking steps to ensure this does not happen again.”

Newcastle-under-Lyme, which has earmarked its windfall for regeneration of its high street, among other projects, is not so sure.

“We have no intention of giving the money back at this stage,” Mr Tagg said. “The council accepted this money in good faith. We want the Government to look at its figures again.

“If we do have to pay it back, it should be over years. We can’t hand over £2 million just like that.”

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