UNNECESSARY red tape and the under-performance of the region's economy has been blamed for the growing North-South divide.

Statistically unemployment could be wiped out in the North-East, if the economy was performing in line with national averages, figures showed.

It would mean 145,000 extra jobs - 65,000 more than the number of people unemployed in the region - and the creation of 18,050 more businesses, according to figures released by the North East Chamber of Commerce.

Yesterday, Cabinet Office Minister John Hutton, on a visit to the region, blamed red tape for the shortage of small businesses in the North-East compared with some parts of the South. He said small businesses struggled because they did not have the money or resources to deal with the many costly and time-consuming regulations in place.

"Fewer small businesses are being set up here than in London and the South-East," he said.

"If there is evidence that the burden of regulations facing people is putting them off then we have got to address that."

Mr Hutton was in Gateshead with the Department of Trade and Industry Minister for Competitiveness Barry Gardiner to discuss with local business leaders the Government's new programme of regulation reform.

The Government's Better Regulation Action Plan aims to remove unnecessary regulations in the UK and across the EU.

Measures include cutting down the number of national regulators from 31 to seven by April 2009 to avoid duplicated requests for information and reduce businesses' paperwork.

Business leaders raised issues such as conflicts in competition law and environmental issues surrounding the climate levy regulations to licensing laws and concerns over employment law.

Alistair Arkley, chairman of the Northern Business Forum, suggested the number of regulations could be a barrier to young entrepreneurs.

"If you're wanting to start up a business and you sit down to list the number of rules and regulation you almost get to the point where you can't be bothered to fill in all the forms. You haven't the resources to understand the risks," Mr Arkley said.

He said the problem was more prevalent in the North-East because of the higher number of people working in the public sector compared to the private sector.

He said: "The public sector is more dominant and the custodians of the law outnumber those trying to create wealth.

"In the South there is a big business base already in place - in the North-East people don't really know where to start and regulations create a hurdle for people starting up."