Some of Wales' poorest areas are benefiting from Objective One funds

The funding scheme is meant to provide a boost to Europe's poorest regions.

Last week, Economic Development Minister Andrew Davies wrote to councils telling them they would lose any allocated money that had not been spent on time, but rejected worries that councils will lose out in the process.

One Welsh local authority, Plaid Cymru-controlled Caerphilly Council, is concerned about what is happening.

In a debate at the Welsh assembly on Tuesday, Mr Davies said local authorities had been under-spending their allocations, which was why he was clawing them back.

It is the latest controversy surrounding the huge Objective One programme, which is intended to deliver �1.2bn of European aid to some of the poorest areas of south, west and north Wales.

The Objective One programme is intended to boost wealth creation but the latest figures show that average wealth in much of Wales is actually going down.

Match funding

The scheme's projects are match-funded, which means that, for every pound given by Europe, a pound must also be supplied by other sources.

Andrew Davies says he is committed to the success of Objective One

Caerphilly's projects have relied on match funding from the LRF - the Local Regeneration Fund.

Last week, Caerphilly say they received a letter from the assembly government which means they could lose �4m.

Council cabinet member Rob Gough said it would affect some of his council's plans to create more jobs.

He added: "In Caerphilly last week, we had one empty unit on our 15 industrial estates.

"If you look around to get small units for small start-up companies, they are not there.

"We need to build units up to 5,000 or 7,000sq ft and this is going to affect that."

We are very committed to making Objective One a success Economic Development Minister Andrew Davies

Caerphilly has drawn about �21m from Objective One, which has helped create or safeguard about 4,500 jobs.

But Alan Garwood, who used to work at the GE works in Bedwas, south Wales, said he was concerned about the lack of well-paid jobs in the area.

He said: "So many jobs from this country are now going to other countries - call centres for example and all that kind of work.

"And I think that, if this continues, we'll become a third world country like the (countries) they are going to."

However, as employment in Wales continues to rise, fewer of the new jobs are seen as well-paid.

If we are looking to see radical change in the Welsh economy, I don't think we should be expecting it in the first half of this decade Stephen Fothergill, Sheffield Hallam University

On Tuesday, Mr Davies said that, even though councils would lose money if it was not spent on time, extra cash was being made available to cover short-term difficulties.

He said: "Having recognised that some local authorities like Caerphilly may have short term problems, for an exceptional allowance I've allowed �10m additional money to be put into the funds for next year.

"We are very committed to making Objective One a success."

Mr Davies added that figures on average Welsh wealth will improve with time.

Professor Stephen Fothergill of Sheffield Hallam University, an expert on European funds, agreed that Objective One programmes take time to boost average earnings.

He said: "I think that the lesson from a place like Merseyside is these things don't happen overnight.