By Claire West

Len Duvall, Labour's leader on the London Assembly, has warned that the government's huge cut of over 50 per cent to economic development funding in London could threaten the city's recovery.

The Mayor announced today that he has negotiated a settlement with the government of just £129.3 million a year to spend on regeneration, employment, support for small businesses, promoting London abroad and tackling climate change. The government grant to the London Development Agency (LDA) in 2010/11 was £275 million.

The Mayor's deputy Sir Simon Milton said today he was "delighted" to announce the £146m cut, which is "good news for Londoners".

Leader of the London Assembly Labour group, Len Duvall, said: "What the Mayor describes as good news for Londoners is actually a kick in the teeth for the city's economy. The LDA has created almost 25,000 jobs in London right in the middle of a recession. Now, just when we need government action to get growth going, the coalition has hit London with this huge cut".

The Mayor's own LDA board warned in January that a cut of more than 13 per cent would prevent the agency fulfilling it statutory duties. A paper presented to the board on 19 January recommended a "break even funding point, beneath which critical mass would be an issue". The break even point "was determined at a 13% reduction in grant in 2011/12", the board papers said.

Len Duvall said: "It's clear a cut of this size calls into the question the Mayor's ability to deliver economic programmes at the very time Londoners need it."