Government ministers will insist on steps to discourage car use before they pay for a multi-million pound North-East transport system, it was warned yesterday.

The £700m upgrade of bus and Metro services will not be supported unless it is matched by efforts to push people onto public transport, Nexus director general Mike Parker said.

The `carrot and stick' approach was advised as councillors voted to back the business case for Mr Parker's Project Orpheus proposals.

It includes a £500m bid for upgrading the Metro, plans to spend £200m improving bus services and a pledge to examine in 10 years' time whether trams could be introduced along the busiest bus routes.

Mr Parker said: "The word is coming from Government that unless the region or sub-region has a coherent demand restraint policy, it is unlikely to get public funds for a transport system.

"The Government quite rightly is saying we have to balance demand and the only way is through a bit of demand restraint.

"The Mayor of London has already suggested what can be done.

"I'm not saying there are the same circumstances here, but that's an example of significant demand restraint which has not only increased public transport use, but has also reduced congestion."

Nexus recognises voters would not yet support congestion charges on Tyneside, but with car use predicted to grow by a quarter in 10 years, a charging scheme could be viable by then.

Other measures, such as increasing car park fees and banning cars from more sections of road, will be considered.

But business leaders warned against schemes which could keep people out of city centres.

CBI North director Steve Rankin said: "For the main arterial routes through the city, to constrain traffic would have a considerable detrimental effect on freight and people moving through the region.

"When it comes to urban areas, we can't say this is something we should not engage in, but one would have to look at specific proposals very closely."

And North-East Chamber of Commerce policy director Andrew Sugden said: "If, genuinely, public transport is not able to grow without these kind of proposals, it's something we would have to look seriously at.

"What makes North-East businesses nervous is where it is seen as punitive, where measures are introduced because a city has been successful at attracting people."

Nexus's case for Project Orpheus was boosted yesterday by statistics showing the Metro system is well on course to hit targets for increasing passenger use.

The Government wants all light rail systems to step up passenger numbers by 12pc between 2000 and 2010, and the Metro's figures have already risen by more than 16pc since the start of that period.

But a spokesman for Nexus cautioned: "It's much more important to have a cast-iron business case.

"Metro's success won't hurt, but it won't be the reason we're awarded any money."