THE distribution of government cash could have caused the Burnley riots, a powerful all-party committee of MPs said today.

The Commons Committee said the way government money was distributed may have heightened racial tensions.

The fact that different groups and areas of Burnley, Bradford and Oldham were in competition for the same money from the Single Regeneration Budget meant there were winners and losers, their report said.

And where the boundaries of the neighbourhoods competing for the money matched those of ethnic groups, that led to anger and tension.

Today, Burnley MP Peter Pike said he had always been concerned about the effect of distributing grants according to ward boundaries.

The House of Commons housing, planning, local government and the regions committee came to the conclusion in a report on "the effectiveness of government regeneration initiatives."

And it expresses concern about the way the SRB,one of the main means of getting Whitehall cash to deprived areas across England, operated.

The MPs said: "We were told that the distribution of SRB resources may have contributed to the tensions between communities in the North of England that resulted in the disturbances in 2001 in Bradford, Burnley and Oldham.

"The competition for recoveries between communities had exacerbated divisions in areas. This focusing of resources on a predominantly white council estate or an Asian area of rundown private housing could cause serious resentment in the area that did not receive funding."

The committee said that decisions on boundaries should be taken locally to try and to avoid such problems and that the rigid Whitehall control in the distribution of SRB and other grants.

It said that the approach to the distribution of such money should look at developing all aspects of regeneration -- jobs, housing and transport -- and take account of social problems such as ethnic differences.

It called on the government to devolve power over the handing out of grants and the boundaries of the area they went to and to keep a close eye on how the system worked.

Chairman of the committee Clive Betts said: "There are too many centrally-driven, national area-based initiatives. Different places have different needs. Local authorities need the freedom to devise local solutions to local needs."

Mr Pike said today: "I have always agreed that distributing financial resources according to ward boundaries created problems. In Burnley it is not true that some ethnic groups got government money and others lost out but the fact that in some cases neighbouring communities won or lost on the basis of ward boundaries made it seem that way.

"Distributing money from Whitehall on the basis of ward boundaries, often out of date, created problems. I have always believed that local authorities should have the power to distribute the money according to local needs.

"The distribution of money according to artificial boundaries from Whitehall creates problems and this is what happened in Burnley in 2001. We need a system where the problems are looked at on an overall basis locally to put the money where it is needed and not cause tension between communities."

Mike Cook, head of regeneration at Burnley Borough Council, said: "The background to the disturbances in 2001 were examined in great detail by the Task Force and that report highlighted the perception of how regeneration resources were allocated was an issue that needed reviewing.

"In Burnley we are working on many different regeneration programmes that are attempting to provide benefits to all communities."