The government has frozen a PFI scheme to regenerate a Leeds suburbs where three of the 7 July suicide bombers lived.

The communities department announced before Christmas that it had not given the green light to Leeds council’s bid for £90m of PFI credits for 1,000 homes in Beeston Hill and Holbeck.

Leeds entered the bid under the £500m fifth round of the housing PFI programme, £200m of which was allocated last month to North Tyneside and Salford councils to refurbish 3,000 council homes.

Leeds was told it would not receive funding, but would be first in line for any money that became available after the allocation of the remaining £300m.

A decision on using this £300m will be made after the conclusion of a value-for-money review being undertaken by the communities department into whether PFI is a cost-effective way of delivering new-build social housing. Most of the so far unsuccessful bidders wanted to use PFI to deliver new social housing rather than bring their existing stock up to scratch.

Leeds regeneration cabinet member Les Carter said: “This is an important scheme. I hope 2007 will see good news for the people of Beeston and Holbeck.”