Nearly £50 million earmarked to help West Midland industry could end up going to the Treasury instead.
The cash was provided by the European Union to support the regional economy.
But the agency which was supposed to distribute the money, Advantage West Midlands, is to be scrapped – and no plans to replace it have been announced.
Concerns were raised in the House of Commons by Black Country MP Adrian Bailey (Lab, West Bromwich West), who pointed out that the cash would simply go to the Treasury if it wasn’t spent in time.
Business Minister Mark Prisk assured him that the Government would announce a new mechanism for distributing the money next spring, but he did not provide any details.
The cash comes from the European Regional Development Fund, which provided £348 million for the region between 2007 and 2013.
About £113 million of this has still not been allocated, partly because any project which receives the cash also needs to have matched funding from the private or public sector. AWM, the Regional Development Agency which is responsible for distributing the funding, is set to be abolished and replaced by new local enterprise partnerships, led by councils and chambers of commerce.
But the new partnerships are not due to receive the money and under EU rules, any new structure set up to manage the cash must be approved by the European Commission. If the money cannot be allocated by 2013 then it will default to the Treasury.
Mr Bailey, the chairman of the Commons Business, Innovation and Skills committee, asked Ministers what they planned to do with the cash.
Speaking in the House of Commons, he said: “In the West Midlands, £113 million of European Regional Development Fund money is still as yet not allocated.
“About 40 per cent has historically been allocated to projects through the Regional Development Agency, but the RDA is now to go, and there is no sign on the horizon of an alternative delivery mechanism.
"Can the Minister assure us that mechanisms will be found to spend that money before 2013, or will it go to the Treasury?”
Business Minister Ed Vaizey insisted: “That money will be spent. Local enterprise partnerships and local authorities can apply for it, and we intend to announce a new delivery mechanism next spring.”
RDAs are already being wound down and Ministers plan to close them by April 2012.
Ministers also defended the Government’s reforms after they were challenged to explain how local enterprise partnerships could succeed without funding.
RDAs had budgets of about £300 million each, provided by the Treasury, on top of any money from other sources such as he EU. But the local partnerships that will replace them have no guaranteed funding, unless they are provided with budgets by local councils. They will be invited to bid for a share of a £1.4 billion national fund.
Former Business Minister Pat McFadden (Lab, Wolverhampton South East) asked Ministers: “Local enterprise partnerships will not have the same resources as the RDAs, which are currently spending about £1.5 billion a year in England.
“How are local enterprise partnerships supposed to help to rebalance the economy if they do not have the resources? Surely setting up these organisations and asking business to lead them is letting those business people down if the Government do not play their part and give them the resources they need.”
Business Minister Mark Prisk told him: “The point of the partnerships is to remove the local barriers to growth and ensure that planning in local areas is addressed, that red tape is tackled and that local transport projects are dealt with jointly by business and civic leaders. That is what LEPs can do. It is not all about subsidies; it is about real action on the ground.”