Creating jobs is the only way Gordon Brown will achieve his goal of increasing productivity and prosperity, the Institute of Public Policy Research has warned.

The think tank said that the chancellor must focus his attention on under-performing parts of the country because of wide productivity gaps.

It argued government regional policy should aim to reverse regional disparities and not just curb the rate at which the South is getting richer and the North is poorer, a new report argued.

The report recommends that employment issues be given equal weight to productivity and that the government's focus on skills shortages and welfare-to-work programmes will not be enough to tackle high joblessness in poorer regions.

Research revealed that since 1992 the gap in economic prosperity between the North East and the South East has nearly doubled from around 30 per cent to nearly 60 per cent.

In February 2003 over one in five of the working population in the North East and Northern Ireland claimed key state benefits, while in the South East the figure was less than one in ten.

More jobs need to be created in areas of high unemployment, the authors concluded.

Report co-author said John Adams said government targets are too weak to reverse the North-South divide and need to be redefined.

"Tackling regional disparities has rightly risen up the political agenda, and the government has made some progress, but it needs to go much further," he said.

"The current targets are ineffective and lack ambition and are simply aiming to reduce the gap in growth rates between regions, but will not commit to reversing the North-South divide.

"The government are making slow progress against a limited goal. People in London and the South East face high living costs, rising house prices and a transport crisis exacerbated by recent tube derailments.

"Meanwhile the North is relatively less crowded, but with a weaker economy and a shortage of jobs. A strong regional economic policy is important for promoting the UK economy as a whole."

The Liberal Democrats argued that one key solution would be to end Whitehall's control over decision-making.

The party's ODPM spokesman Edward Davey argued London was too distant to know what the real problems are in different regions.

"The IPPR report uncovers the weakness in the government's regional policy ambitions. Labour's failure on regional devolution means power is still centralised in London," he said.

"This remains the key stumbling-block in tackling Britain's long standing regional divide. The IPPR conclusion comes hard on the heels of the similar select committee report and will be a devastating blow to Prescott's claims on a strong regional policy."