THE brakes were slammed on plans for the new Micra to be built at Nissan's North-East plant last night after the European Commission launched a formal inquiry into the Government's proposed £40m state aid package.

The Government insists the funding is vital to help modernise the Wearside plant to produce the Micra's replacement and keep the project in Britain. It warns Nissan could move production to a Renault plant in France unless financial backing is provided.

But the European Commission has now confirmed it is not convinced that the cash injection was necessary.

A full investigation has been launched into whether the funding is compatible with EU rules governing state aid to the car sector.

Nissan bosses welcomed the timing of the move last night.

Spokesman Stuart McKee said: "We always expected the EU would open an inquiry into this selective assistance, and we are pleased it has begun so early.

"The quicker it begins the quicker it can end, and we can continue modernising the Sunderland plant and improving its profitability, ready for the new Micra."

Brussels has the power to veto any government finance it feels gives a national car industry an unfair advantage over others in the EU.

The offer of a £40m injection would contribute to a total Nissan investment programme at the Sunderland factory of nearly £309m.

But the Government has emphasised to Brussels that so far Nissan has not made a firm decision to produce the Micra in the North-East, and that the car company could still opt to set up at the Renault plant, even if the UK state aid is disallowed.

Production of the new Micra is planned to start in January 2003, with a location decision expected from Nissan by the end of the year.

A commission statement yesterday said: "Since the commission at this stage has doubts on the necessity and proportionality of the aid, the eligibility of costs and the effect on the production capacity, it decided to open the investigation procedure in this case."

The investment programme at Nissan Sunderland has come at a price.

Earlier this week, The Northern Echo reported how hundreds of maintenance technicians had written to management to register their concerns about new 24-hour production schedules