A £500M regional growth fund set up to attract private sector jobs to the North must also pay to build local roads and to demolish slum housing, The Northern Echo can reveal.

Deputy PM Nick Clegg hailed the fund as proof the coalition Government was determined to foster a thriving and more balanced economy, when he announced it in June.

Described as an enterprise fund, Mr Clegg said firms tempted to invest in the North would be able to bid for money for plans that would stimulate jobs and growth.

But the small print of this week’s Comprehensive Spending Review reveals that a third of the £500m annual fund will come from the Department for Transport (Dft).

Bids for “local transport schemes “ will be invited.

Furthermore, it emerged that grants to demolish or renovate rundown homes across parts of the North will come from the fund.

The Tees Valley is among about 12 areas that have received “housing renewal”

money to stimulate housing markets by sweeping away crumbling properties.

Labour seized on the revelations as evidence that the much-touted regional growth fund lacked the financial muscle to create jobs amid the huge public spending cuts.

John Denham, Labour’s business spokesman, said the fund, worth £1.4bn over three years from next year, was already a massive reduction on the £1.4bn annual funding of the doomed regional development agencies.

And he said: “Not only is there much less money, it looks like this fund will now have to cover housing and transport projects that previously had their own funding.

“This is going to hit areas like the North-East hard, areas like Hartlepool and Darlington.

It is a recipe for failure, not growth and jobs.”

A spokeswoman at the Department for Business defended the decision to fund local road improvements from the growth fund, saying: “Roads can contribute to economic growth.”