The Government should admit defeat on road pricing and make the money available for projects such as the Midland Metro instead, an influential thinktank has insisted.

It warned that more than £1 billion has been set aside for towns and cities which introduce congestion charging – and the money may never be claimed.

But the cash could be used to fund long-awaited projects such as the extension of the Midland Metro tram line through Birmingham city centre and into the Black Country, according to the Centre for Cities think-tank.

The recommendation was welcomed by Birmingham City Council, which has formed a partnership with councils in the Black Country and Coventry to try to improve the region’s transport network.

Ministers created a special fund known as the Transport Innovation Fund in 2005, to pay for improvements to public transport in regions which introduce road pricing.

But most of the money is still unclaimed four years on, after councils failed to take up the offer. West Midlands authorities drew up detailed plans which involved charging motorists up to £5 a day to drive into city centres, only to scrap them in the face of widespread opposition.

Greater Manchester authorities asked residents to vote on road pricing, and the scheme was rejected by a four to one majority. Other councils, including Cambridge, Bristol and Leeds, have considered charges but were unwilling to press ahead.

According to the Centre for Cities, the Government should give it until the end of the year, and then admit that the policy is dead. The cash could then be distributed to councils or transport authorities which urgently need it to pay for public transport improvements during the recession.

The report highlights the Midland Metro as the type of project which needs financial support. Authorities could eventually repay the money through the taxes they would receive when the Metro helped revitalise the local economy, the study said.

It said: “West Midlands Centro – the transport authority in the West Midlands – has had plans to extend the Midland Metro tram line through Birmingham city centre and into the Black Country for the last decade.

“The estimated cost of this project is around £430 million, but it has repeatedly been delayed by funding problems.”

Dermot Finch, director of Centre for Cities, said: “If there are no takers by the end of the year, the Government should call it a day on its current road user charging push.”

Stephen Hughes, the chief executive of Birmingham City Council, said, “I welcome this paper from the Centre for Cities as a thoughtful contribution to the wider debate about how to fund transport infrastructure projects in metropolitan areas.”

He said councils in the region, working together as Birmingham, Coventry and the Black Country City Region, had drawn up plans to improve transport infrastructure and repay the funding through the increased business rates the improvements would generate.

A Department for Transport spokesman said: “The Government invests more than £2 billion a year in local and regional transport across England. The Transport Innovation Fund is an additional stream of funding provided specifically to help tackle local congestion by combining major extra investment in public transport with demand management.

“Where local authorities decide congestion charging is not the answer to their congestion problems they will continue to receive significant transport investment through existing programmes.”