THE region’s economy will suffer under Government plans to hand key powers back to Whitehall, business groups warned yesterday.

The Confederation of British Industry (CBI) led fierce criticism of proposals for crucial responsibilities – over inward investment, key sector development and European aid – to pass to civil servants in London.

The CBI also warned of dangerous “fragmentation” if development agency One North East was replaced by up to five Local Enterprise Partnerships (LEPs).

In particular, it suggested County Durham – which is bidding alone – lacked the muscle to drive forward necessary infrastructure improvements.

And it criticised the muddled way the shake-up was being carried out before the role of LEPs has been decided.

Most of the criticisms were echoed by other groups giving evidence to the Business Select Committee – the British Chambers of Commerce (BCC), the Federation of Small Businesses, the Engineering Employers’ Federation and the Institute of Directors.

The united front came days after rival bids to set up LEPs were submitted to the Department for Business, designed to replace development agencies in 2012.

As well as Durham, LEP applications have been lodged by the five Tees Valley councils, Sunderland and South Tyneside, Newcastle and Gateshead, and by Northumberland and North Tyneside respectively.

However, arguing for a region- wide group, the Northern Business Forum joined forces with the Association of North-East Councils to submit plans for a North-East Economic Partnership.

To replace Yorkshire Forward, Hambleton and Richmondshire councils joined up with York to bid for a North Yorkshire LEP, but they are also interested in being part of a Leeds region LEP.

Meanwhile, Lib Dem Vince Cable is at loggerheads with Conservative Communities Secretary Eric Pickles over the shake-up – arguing for more powers for LEPs where they are wanted.

Yesterday, the business groups sided with Mr Cable, urging a rethink to avoid economic damage, highlighting the importance to the North- East of car manufacturing and the chemicals and process industries.

John Cridland, the CBI’s deputy director-general, said: “Can inward investment decisions be delivered by civil servants in Victoria Street [the headquarters of the Department for Business]? We don’t think so.”

A White Paper on regional development to propose LEP powers has been delayed.