The North-East is Britain's weakest region when it comes to developing the high-tech skills needed for future prosperity, a Government report has said.

According to the Department of Trade and Industry study published this week, the region is falling behind when it comes to the so-called "knowledge economy".

The term is Whitehall jargon for the cutting-edge sector of the economy in which competition is based on skills rather than low costs.

Trade Department researchers say these skills are concentrated in London, but there is a very different story to be told in ''the North East, Britain's weakest knowledge economy".

Here, they have found people with no qualifications account for a third of the workforce and the graduate labour pool is only half as big as London's and much smaller than the national figure.

Peter Mandelson, MP for Hartlepool and a former Trade Secretary, said the report made the argument for more devolution to the North- East and greater investment in skills.

"Attracting hi-tech industry to the North-East is fundamental for creating more and better-paid jobs.

"Greater investment and reform to increase basic skills and getting more people into higher education is the right way to do this.

"It's also crucial to continue devolution of power and resources to the regions who know their greatest strengths and can maximise our economic potential."

While it highlights the lack of skills, the study points out this is not because of a lack of demand.

One NorthEast, the region's development agency, is concerned about a "brain drain" to London and the South- East.

It claims the report could have profound implications for the nation, as growth is concentrated in the South- East.

The study says: "The reality is that there are two incompatible geographies of the knowledge economy".