Conservatives have attempted to end a damaging row over regional economic policy with a letter to backbenchers from the Shadow Cabient.

Shadow Local Government Secretary Caroline Spelman, MP for Meriden, and Shadow Local Government Secretary Ken Clarke issued the joint statement promising to “strengthen local economic development and urban regeneration.”

It follows confusion over Tory plans to scrap agencies such as Advantage West Midlands, which spends £300 million in the region, during which the two shadow cabinet members appeared to be at loggerheads.

Mrs Spelman last year announced plans to encourage local councils to form local economic development agencies, which would replace the regional bodies.

But this provoked a strong reaction from business organisations including Birmingham Chamber of Commerce, which insisted the agencies played a vital role supporting local employers.

Mr Clarke announced last month that he had demanded a review of the policy, saying: “I’m one of those insisting that we go through it with colleagues, just to ask how are we going to best have this presence out of London, this regional, local presence that industry says is important.”

And senior backbench Tory Peter Luff (Con Mid Worcestershire), chairman of the Business Select Committee, also urged a rethink. He urged his party: “Reform the regional development agencies radically but do not abolish them.”

Meanwhile, Labour attempted to capitalise on Conservative confusion as Business Secretary Lord Mandelson insisted the agencies played a vital role in bridging the north-south divide, in a speech to regional newspaper journalists in London.

The new letter, signed jointly by Mrs Spelman and Mr Clarke, is an attempt to end the disarray.

It states: “We intend to strengthen local economies by enabling business and elected local authorities to come forward with proposals for new local enterprise partnerships to replace the regional bodies.

“The boundaries of local enterprise partnerships will reflect natural economic areas. If the local authorities and businesses in a given region decide that the current regional boundary reflects their local economic area and decide to form a regionally based local enterprise partnership, then, in line with our principle of localism, we will respect their view, under the new arrangements.

“Business will have a strong voice under the new arrangements. At least fifty per cent of the boards of the new partnerships will be representatives from local commerce and industry and a leading local business person will chair each new partnership.”

In a “Q&A” section at the bottom of the letter, the pair insisted they did not want to scrap regional agencies, saying: “We want to reform the system, not scrap it.”

But they also said the agencies would be “replaced” by new organisations, saying: “We will reform the system by enabling your local councils to replace the existing agency with a new partnership between themselves and local business, to focus on things like regeneration and jobs. This will mean elected councils and local businesses deciding local economic priorities.”