Blundering Government bureaucrats give £2m council grant to the WRONG Newcastle

The other is a city in the North East.

Despite the similarities in their names, it would seem hard to confuse Newcastle-under-Lyme with Newcastle upon Tyne.

Yet someone in Whitehall has managed it - in a blunder involving more than £2.5million of taxpayers' money.

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That amount was paid in a grant to Newcastle-under-Lyme when it should have gone to its larger counterpart 185 miles away.

After discovering its mistake, the Department for Communities and Local Government has announced that Newcastle upon Tyne will be given an extra £2,787,426 at the beginning of next month.

But requests for Newcastle-under-Lyme to return its overpayment have been met with a firm rebuff.

Council leader Simon Tagg claims that the money has already been earmarked for special projects designed to encourage business growth in the town centre.

"As far as I'm concerned this money is ours," he declared.

The mistake happened in 2006 when civil servants calculated how much councils in England and Wales should receive as part of the two-year Local Authority Business Growth Incentives scheme which offers population-based rewards for encouraging economic development.

While Newcastle-under-Lyme should have received a total of £500,000 between 2006 and 2007 it was actually given £2.5million.

In contrast, Newcastle upon Tyne was paid just over £5million - significantlyless than the £7.7million it was expecting.

It naturally queried the figure only to be assured by civil servants that everything was as it should be.

When Whitehall finally noticed its error, Graham Duncan, deputy director of local government finance, wrote to the councils concerned explaining how they had mixed up the two while calculating the awards.

In his letter to Newcastle-under-Lyme, dated January 18, he said the amount it was paid was calculated for a city the size of Newcastle upon Tyne.

"I regret to say that as a result your council has been overpaid £307,000 in the first year and £1,713,000 in year two.

"Total overpayment is £2,020,200. Under Government accounting rules the department is always required to pursue recovery of over-payments."

Another letter was sent to Newcastle upon Tyne explaining the mistake but promising to pay it the shortfall.

John Shipley, leader of the city council, said: "It's an astonishing error by a Whitehall department to confuse the two Newcastles.

"Local government is regularly accused by central government of inefficiency.

"Now we have a major Whitehall department that doesn't know the difference between Newcastle-under-Lyme and Newcastle upon Tyne."

Back in the other Newcastle, Mr Tagg said he had believed the extra £2million was reward for the council's hard work.

"I'm flabbergasted someone could have made this mistake. For a ministerial department to get it so horribly wrong is incredible.

"We have no intention of giving the money back at this stage.

"If we do have to pay it back, it should be over 20 years. We can't hand over £2million just like that."