GOVERNMENT grants to tempt companies to the North-East are failing to get people off the dole or close the North-South divide, a committee of MPs said yesterday.

The committee's highly-critical report found the targeted aid had achieved only a "miserly cut" in unemployment.

And it attacked the Department of Trade and Industry (DTI) for failing to either target the grants successfully or publicise them properly.

Darlington, Durham, Hartlepool, Middlesbrough, Sedgefield, Stockton-on-Tees and Sunderland are among places eligible for both regional selective assistance (RSA) and enterprise grants.

About £100m is pumped in every year across the country, to create or safeguard jobs by encouraging companies to invest in disadvantaged areas.

But, at best, the grants helped cut unemployment in assisted areas by 0.5 per cent in four years, the public accounts committee said.

It concluded that 30 years of the targeted assistance had "failed to close gaps between the relative economic performances of the English regions".

In 1988, unemployment in the North-East was more than three times that in the South East. By 2002 - after £1.4bn of regional grants - that ratio was unchanged.

Only about 40 per cent of jobs supported were saved because of targeted aid - a figure described as disappointingly low.

More grants should be diverted to the service sector - the main growth area of the economy - rather than 90 per cent being allocated to manufacturing.

The DTI was accused of failing to target the distribution of grants to take account of the widely varying needs of different areas.

It was attacked for failing to market them more actively, after applications had plunged from 1,832 in 1995 to 1996, to 960 in 2001 to 2002.

Edward Leigh, chairman of the committee, said: "Thirty years of taxpayers' funding has failed to close gaps between the relative economic performances of the English regions."

The MPs said the DTI had been urged as long ago as 1995 to end the "bias in support to manufacturing" by widening the criteria to include salary costs, as well as capital expenditure.

Enterprise grants of up to £75,000 are available towards projects costing up to £500,000.

RSA grants can be up to 35 per cent for projects costing more than £500,000.

In April 2002, the regional development agencies took over responsibility for RSA grants of up to £2m, but larger applications are still dealt with by the DTI.