CHANCELLOR Gordon Brown and the European Commission clashed last night when they met to discuss the fate of £575m of Euro aid earmarked for Durham and Tees Valley.

Michel Barnier, the Commissioner for Regional Policy, said the Chancellor's plan to "renationalise" Britain's aid budget would wreck the seven-year deal struck in Brussels last month.

But the Treasury hit back by insisting the EU's expensive proposals to help poorer regions, including Durham and Tees Valley, were not good value for the British taxpayer.

It was the first time Mr Brown had met Mr Barnier since Durham and Tees Valley were put in line for the aid, because GDP per head had slipped to 75 per cent of the average of the 15 existing EU members.

The package could be worth £575m over the seven years between 2007 and 2013 - money to be used to boost jobs by attracting investment to struggling areas.

But Britain and five other EU countries are demanding Brussels cuts back its ambitious £236bn cohesion package and caps its overall budget.

British regions, which are less poor than Poland, Slovakia and the other countries that join the EU on May 1, would be the ones to lose out if spending falls.

Speaking to journalists ahead of the meeting, Mr Barnier said: "I'm not willing to sign up to the proposal to renationalise.

"This would be a seven-year guaranteed period of aid and that's something no member state can do because of political and budgetary realities."

But a Treasury spokeswoman said: "The EU budget implied by Mr Barnier is not realistic and we don't think it would be good value for the EU, the UK or any of our regions.

"We think that if we are having to contribute to the increased budget the Commission is proposing, it would mean we had less money to spend here on domestic funding. This reduction would be far greater than any money we would get back from structural funds, so his assertion that the regions would lose out is not accurate."

Objective One funding, to be renamed Convergence and Competitiveness, is matched by the Government. It is credited with creating or safeguarding 54,000 jobs in West Wales since 1999.

The package can only be afforded if the Brussels budget grows to 1.11 per cent of EU income, which would force member states to hand over extra cash.