DEPUTY PM Nick Clegg told a meeting of city leaders economic recovery would fail unless big urban centres like Sheffield become 'economic power houses'.
The Lib Dem leader told leaders of the Core Cities Group - England's eight biggest cities outside London - that a "significant rebalancing" of the British economy was needed to give local authorities greater power and autonomy.
Mr Clegg faced difficult questions from some council politicians - all of whom are dealing with budget cuts of up to nine per cent this year.
Speaking at Sheffield city centre's Digital Campus, Mr Clegg said: "I understand these are difficult times and you are dealing with the sharp end of the decisions the Government is taking to deal with the deficit.
"It's a huge, huge task which will not be done overnight and without significant growing pains and bumps. One thing I am completely convinced of is that if we are going to be successful we need to give the cities outside London a degree of autocracy and freedom.
"Without a transfer of powers and growth in these cities over the next 15 to 20 years, we cannot create the growth we need in this country.
"I don't want to be apocalyptic but this is a political and economic set-up that just does not work."
He said the 1.4bn Regional Growth Fund, the new Local Enterprise Partnerships and the abolition of ring-fenced government grants would boost growth.
But members questioned how effective the measures would be in the light of severe funding cutbacks.
Labour Nottingham Council leader Jon Collins slammed an "appallingly regressive" local government settlement which left deprived cities in the Midlands and the North - including Sheffield - with far greater budget cuts than some councils in the south.
Mr Clegg replied: "There's a structural issue no government can do anything about - some areas are more affluent than others and have ways of raising revenue that others do not."
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