A “SUBSTANTIAL” proportion of money replacing EU structural funds after Brexit should be allocated to training and skills in regions with high unemployment, a Labour-commissioned report recommends.

Future governments should commit to replacing EU funding worth at least £1.5 billion a year and also allow for inflation, it says.

The trading bloc has allocated £9bn to be distributed across Britain between 2014 and 2020, with Wales getting more than £2bn due to its “less developed” status.

London is the most prosperous area in northern Europe, but Britain also has six of the 10 most impoverished regions with lower employment and economic productivity.

The study by Sheffield Hallam University published today reveals stark regional inequalities: while employment rates grew by 18 per cent in the capital between 2010 and 2016, it fell in areas such as the Tees Valley and the Black Country.

The researchers found that median incomes in England’s north-west, north-east, West Midlands, Wales and the south-west are more than 30 per cent lower than in London and the south-east.

And “hidden” unemployment is much higher in former industrial areas with weaker economies where up to 10 per cent of all working-age adults are pushed out of the labour market, going unrecorded in unemployment statistics because they claim incapacity benefits.

“In these places, where employers can be choosy about who they take on, ill health or disability can be a key factor in determining who finds and keeps employment,” the report, titled Strong Economies, Better Places, adds.

The report suggests that public-sector employment could play a bigger part in reducing regional disparities.

It recommends establishing a body to oversee regional development, allocating a bigger proportion of funding available through the national investment bank to support poorer regions, and boosting skills training by earmarking a substantial proportion of the replacement of EU structural funds for skills development in less prosperous local economies.

Shadow business secretary Rebecca Long-Bailey said Labour will consider the recommendations for its industrial strategy.

She added: “There is something fundamentally wrong when the fifth-richest country in the world has the highest level of regional inequality in the whole of Europe.”