FEARS were growing last night that County Durham and Tees Valley would miss out on most of a promised £500m Euro-aid package.

It followed the Government's announcement that the weekend deal to cap the Brussels budget had slashed £28bn off the sum set aside for development aid across the European Union.

That, in turn, threatens the announcement last year that County Durham and Tees Valley was in line for about £500m of aid over the six years between 2007 and 2013.

The money, called Convergence and Competitiveness funding, is matched pound-for-pound by the Government to boost jobs by attracting investment to struggling areas.

But Merseyside and South Yorkshire - areas of similar levels of deprivation - had their allocations slashed in half yesterday because of the smaller overall budget.

There was no mention of County Durham and Tees Valley, because other detailed spending allocations will not be decided until some time next year.

Last night, the Government insisted it had already significantly boosted its own spending on regeneration projects, and would continue to do so in future years.

But MPs said they were fearful the Treasury would fail to make up any shortfall as a funding "black hole" forced the Chancellor to tighten the purse strings.

The controversial budget deal will already force Gordon Brown to find an extra £1bn a year for his spending priorities as Britain gives up a slice of its EU rebate.

County Durham and Tees Valley was due to be eligible for up to £500m because its Gross Domestic Product (GDP) per head had slipped to 75 per cent of the average of the 15 oldest EU members.

But the package was dependent on the Brussels budget growing to 1.11 per cent of EU income. It will now be capped at 1.045 per cent, as Britain and others cut their contributions.

That means total "structural and cohesion" spending will be £208bn over the next seven years - instead of the £236bn the commission wanted.

Separately, the money for County Durham and Tees Valley is threatened because more recent EU figures pushed its GDP per head to 75.9 per cent of the EU-15 average.

That was because the commission included "extra-regio" revenues from offshore oil and gas revenues, a decision being fought by the British government.

That dispute should be settled early next year, when more up-to-date GDP figures - for the years 2001-3 - are published.