GORDON Brown's government failed to throw its efforts into spreading wealth from the City of London until the shock of the banking crash, his key ally admitted yesterday.

Lord Mandelson said the state's role in boosting industry and manufacturing - instead of relying on financial services - were "questions that we weren't really asking in government two years ago".

The Business Secretary's comments, to a conference entitled 'New Industry, New Jobs', are the starkest admission yet that Labour ministers were too focused on banking and other financial services in the Square Mile.

And they open up what Lord Mandelson believes will be a crucial divide at next year's election - how the parties plan to build a "balanced recovery"

and avoid the mistakes of the past.

The prime minister has announced a £1bn 'National Investment Corporation', to seed-fund innovative small firms in new technologies such as biosciences, pharmaceuticals, plastic electronics and low-carbon wind and wave power.

Many of them are expected to be in the North-East, including * The Printable Electronics Technology Centre, at the North-East Technology Park (NETPark), at Sedgefield - handed a £20m investment in July, to create 250 jobs locally and 1,500 nationally.

* The industrial biotechnology demonstrator at Wilton, on Teesside - given £12m in July, to pioneer low-carbon techniques and help petrochemical companies diversify.

* A £20m facility, in the deep-water berth at Hartlepool Dock, making underwater cables for the groundbreaking Wave Hub wave energy generation project, in the South West.

Meanwhile, Lord Mandelson believes the Tories - and the Liberal Democrats - have made a big error in pledging to axe the regional development agencies, that co-ordinate efforts to win investment and jobs.

Yesterday, the former Hartlepool MP pledged to "drive forward industrial activism" - while accepting it had taken the banking crisis to "focus our minds".

Lord Mandelson said: "This is a conference that almost certainly wouldn't have taken place two years ago. It is about questions that we weren't really asking in government two years ago.

"They are post-banking crisis questions about the roles of government and the market. About how we build a balanced recovery. The banking crisis has focused our minds - and that's a good and necessary thing."

Lord Mandelson pledged that his 'New Industry New Jobs' programme - detailing a £750m investment, announced at the last Budget - would reverse the policy of "two decades or more".

There would be a new focus on low-carbon skills in higher education, opening up government procurement to smaller, more innovative companies and on helping local partners deliver "key national priorities".

He added: "Industrial strength can be lost - or never built - for reasons that are totally avoidable. We can't afford to cross our fingers and hope that these technologies get off the drawing board."

The speech comes a few weeks after Lord Mandelson admitted people in the North had been "hardest hit" by the recession, but denied more of them now backed the Tories