THE true extent of the North-East's reliance on Government cash to support the regional economy is revealed in a report.

Figures show that more than 60 per cent of the economy is underpinned by public-sector spending.

Business leaders said the figures showed that the North-East economy was still frail, despite the vast amounts of money poured into regeneration schemes.

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Figures from the Centre for Economics and Business Research show that in southern regions, dependence on the state has barely risen, while in northern areas it has jumped dramatically.

The regional breakdown shows that the North-East now relies for 61.5 per cent of its economic output on the public sector.

The figures are in sharp contrast to the South-East, where private enterprise is the main generator of income.

Business leaders said the figures for the North-East renewed worries that the public sector was "crowding out" the wealth-creating private sector.

Sir Digby Jones, the director general of the Confederation of British Industry, said: "I'm very worried about this.

"The private sector is responsible for around 62 per cent of GDP in China - a communist, totalitarian regime."

Tony Travers, director of the Greater London Group at the London School of Economics, said: "All of this raises the question of whether public spending is a good or a bad thing.

"Thirty or 40 years ago, regional planners would have said that the thing to do to close the North-South divide would be to shift public spending north.

"The thing that makes economies grow is the vibrancy and success of the private sector."

John Adams, director of research at the Institute for Public Policy Research North, agreed the figures reflected big economic differences between the regions.

He said: "It's right the national exchequer should transfer money to poorer people and that you have some kind of system that protects the poorest people.

"But the ideal situation is that all the areas of the country have a healthy economy and healthy employment."

The funding disparity has also widened dramatically in recent years, as more taxpayers' cash is funnelled into the public sector.

In London, public spending is only 33.4 per cent of economic output, while public spending in the Yorkshire and Humberside area is 48.9 per cent.