Liverpool council has strongly criticised the government for not lobbying on its behalf after it emerged that its European funding for regeneration is to be cut by two-thirds.

News of the cut has been revealed in a report this week by the Institute for Public Policy Research. It said Merseyside received *1.3bn (£900m) in European Union funds between 2000 and 2006 but was likely to obtain *450m (£312m) between 2007 and 2013.

The cut is a result of the EU stripping Merseyside of its "objective 1" status, the category of the neediest areas in the EU. This means it is no longer entitled to the full amount of development funding available.

Council leaders in Liverpool hit out at the government for not doing more to influence the EU's decision, which will mean the UK's share of EU structural funds falls 43%, or *16.6bn (£11.5bn), to *9.4bn (£6.5bn).

Flo Clucas, executive member for economic development and Europe at the council, said that the money for the UK in the final EU budget agreed by the EU member states was significantly below that proposed by the European commission.

She said the cut would undermine regeneration schemes: "If the government had held out for the level of funding the UK proposed through the European commission it would have made a huge difference to areas like ours. It would have given us a lot more to play with."

Out of pocket: Liverpool may only recieve £312m over seven years

Out of pocket: Liverpool may only recieve £312m over seven years

This is the end of the EU gravy train: cities will have to do more with less

IPPR report on structural funding

South Yorkshire is the other region to lose its objective 1 status; its European funding will fall to a third of previous levels. South Yorkshire received *1.2bn (£833m) between 2000 and 2006. This will be cut to *400m (£277m) between 2007 and 2013.

An IPPR report, which analyses the effects of the EU budget cuts, praises the contribution to British cities made by EU structural funds for producing landmark projects such as the International Convention Centre in Birmingham and Supertram in Sheffield. But is adds: "This is the end of the EU gravy train: from 2007 onward, cities will need to do more with less."

Pointing to the EU budget in 2013 as the last in which the UK can expect significant money from structural funds the paper argues that the government should focus the remaining money on city-regions to maximise its impact.

The authors of the report, Last Orders: What the New EU Budget Means for Britain's Cities, said there was a "growing consensus" at the heart of government over the role played by city-regions in driving economic performance.

The funding cutback comes as David Miliband, the communities minister, has announced that provincial cities such as Liverpool will be the focus of a government regeneration initiatives, possibly at the expense of the housing market renewal programme.