Prime minister Tony Blair has insisted on the abolition of county councils as the price for supporting regional government.
A white paper on regional government is due around Easter, with proposed legislation following later in the year.
trade-off is the abolition of county councils.
A source close to the on-going discussions claims the prime minister has demanded there be two layers of government once assemblies are up and running.
'That means the abolition of shire counties. This has been the price of Blair's support because he sees people will not be pleased with an extra layer of bureaucracy,' the source said.
Conservative local government and the regions spokesman Malcolm Moss said the government will distort the issue of county councils: 'They are selling this on the basis of local choice and they will not impose a blueprint. But when regional government is set up in the areas where there is strong support, like the north-east, they will channel funds in there.
'That means other areas will be forced to go down the road of abolishing county councils in favour of elected chambers.'
Labour first promised elected regional assemblies during the 1997 general election, a pledge repeated at the last election when deputy prime minister John Prescott gave his backing to devolution. But their manifesto said assemblies would only be set up after a referendum, and where there is 'predominantly' unitary local government.
John Sellgren, director of the County Council's Network, said: 'The government is committed to producing a white paper which will consider the issue of regional government in England . . . it is unhelpful to speculate about what it might say.'
He added: 'Speaking at the CCN conference in November, [local government minister] Nick Raynsford made it clear the government's priority is the modernisation of public services. In order to achieve this we need the commitment of staff. Raising spectres about a potential restructuring of local government is damaging to staff morale in both county and district authorities.'
He said when the government's proposals are published, the network could assess the implications and 'manage any potential change in a positive manner'.
Peter Chalke, leader of Wiltshire CC and deputy leader of the LGA Conservative group, said: 'It doesn't surprise me, but it's contrary to Nick Raynsford saying there is no threat to counties.'(LGC, 30 November 2001).
He stressed counties were at the forefront of modernisation: 'I'm surprised the prime minister thinks in the way he does. This removes strategic government to a remote level people won't understand.'
Local government secretary Stephen Byers has always sought to placate fears over the abolition of county councils, claiming there is no one-size-fits-all plan for assemblies. He is on record as saying local people would be allowed to choose whether they wanted to keep county councils.
However, suspicions about the government's real intentions have been aroused by the planning green paper. This suggested stripping counties of their planning powers, seen by many as leading to their eventual abolition (LGC, 23 November 2001).