The Treasury must return #50 million earmarked to help victims of the Rover collapse, the MP representing Longbridge demanded.
Richard Burden (Lab Northfield) said: "There is still essential work that is needed to help the local community and the economy to recover."
The money was part of a #176.5 million programme overseen by the MG Rover Task Force to help Rover workers and suppliers, after the car giant collapsed last year.
But Ministers revealed this week that only #126.5 million had actually been spent – and the Treasury has kept the rest.
Trade and Industry Minister Patricia Hodge said only #33.1 million had been spent on helping businesses in the supply chain, much less than expected.
But the Task Force was not allowed to spend the spare cash on other measures, such as regenerating Longbridge, the site of the Rover factory.
Mr Burden called on the Government to release the funds, so it could be used where it was needed.
He said: "It's true that the supply chain wasn't hit as badly as we had all feared, and that's good news.
"But there is an urgent need to regenerate south-west Birmingham and the area right next to Longbridge in particular."
He said groups such as the Rover Community Action Trust, which represents Rover workers and their families, should have a say in how the money was spent, as well as the city council.
He called for a range of measures to help Longbridge, including a new job centre and improved transport to encourage businesses to move to the area.
The MP is also pushing for a major education centre for youngsters aged 14 to 19, possibly involving Bournville College, to be built in Longbridge.
Nick Paul, chairman of the MG Rover Task Force, said only 389 people hit by the closure were still officially unemployed. The Task Force, which has been wound up, was a partnership of government agencies led by Advantage West Midlands.
Mr Paul said: "Every penny of money that was earmarked for workers and the community has been spent."
Conservative MP Julie Kirkbride (Con Bromsgrove), whose constituents include many former Rover workers, accused the Government of "a cynical approach to Rover".
She said: "They offered a generous package just before the General Election last year, when everyone's attention was focused on Rover.
"Now the election has been and gone, and they are clawing the money back."
Ms Hodge said this week: "In the event, the impact on MG Rover’s suppliers and their workforce was not as severe as had been feared and the full amount set aside was not required."
Although 100 firms in the supply chain had been considered to be at risk, only 11 eventually closed.
Ms Hodge also revealed that the total cost of the DTI inquiry into the collapse of Rover has now reached #7.2 million. She said: "The investigation continues."
Last night a spokesman for the Department of Trade and Industry said: "When the Task Force money was announced, it was said that it would be made available if needed to meet the immediate impact of MG Rover closing. It is a tribute to the resilience of the West Midlands economy that the impact on MG Rover’s suppliers and their workforce was not as severe as had been feared."
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