The £3.6 billion Towns Fund was introduced by the Ministry of Housing, Communities and Local Government (MHCLG) in summer 2019.
Ministers selected towns to receive funding from a ranked list prepared by officials.
But in a report published today, the cross-party Public Accounts Committee says it is “not convinced by the rationales for selecting some towns and not others”, finding the justification offered by ministers for selecting individual areas to be “vague and based on sweeping assumptions” - raising concerns over the decisions being politically motivated.
It also found that the department gave "weak and unconvincing justification for not publishing any information on the process it followed".
The MHCLG spokesperson said it "completely disagree(s) with the committee’s criticism".
The scheme has come in for criticism after it emerged a number of areas in marginal seats in the last General Election were chosen for investment despite scoring a low rating on criteria set by the Ministry of Housing, Communities and Local Government (MHCLG).
The PAC said that in some cases, towns were chosen by ministers despite being identified by officials as the very lowest priority - one town selected ranked 536th out of 541 towns.
In Yorkshire, the areas chosen were Brighouse, Castleford, Dewsbury, Doncaster, Goldthorpe, Goole, Keighley and Shipley, Morley, Rotherham, Scarborough, Scunthorpe, Stainforth, Stocksbridge, Todmorden, Wakefield and Whitby.
Fourteen out of 17 of those towns taken as wider areas have a Conservative MP - if Don Valley's Nick Fletcher and Rother Valley's Alexander Stafford are included - seven of which swung from other parties to being Tory constituencies in the General Election last December.
Robert Jenrick, Secretary of State for Housing, Communities and Local Government , earlier this year told The Yorkshire Post that investment of up to £25m in each of the successful towns was designed "to boost confidence, and to begin the rebuilding of the economy post-covid".
Labour's Meg Hillier MP, chairwoman of the Committee, today said: “In our programme of work on the Government response to the Covid pandemic, we have begun to see the grim, potentially huge costs of public spending made in haste and without all the usual, legal checks and controls.
"That makes it all the less acceptable to now be looking at billions of pounds handed out in an opaque process that has every appearance of having been politically motivated - long before Covid struck.
“Now, when every penny counts, and when some towns that won funding will almost certainly have to redirect it to fill the massive holes the pandemic has blown in their budgets, MHCLG must be open and transparent about the decisions it made to hand out those billions of taxpayers’ money, and what it expects to deliver.”
All 101 towns selected to work towards a Town Deal were given a funding allocation with proposals submitted to the MCHLG in August.
The Government has said the funding will help local leaders "transform their town’s economic growth prospects with a focus on improved transport, broadband connectivity, skills and culture".
But the PAC report claims that MHCLG has "also not been open about the process it followed and would not disclose the reasoning for selecting or excluding towns. This lack of transparency has fuelled accusations of political bias in the selection process, and is a risk to the Civil Service’s reputation for integrity and impartiality."
The committee added: "The selection process was not impartial. Ministers chose most of the towns from a large group deemed eligible, based on assumptions around broad criteria."
It reports that MHCLG said that it wanted to give money to towns which it deemed unlikely to have the expertise to succeed at bidding for funding through an open competition - which the PAC says also raises concerns about whether those towns will have the capacity to spend the money well.
The PAC said that it is still "far from clear" what impact MHCLG expects from the Towns Fund, when it expects to see the benefits, and how it will measure success both at the town level and across the whole programme.
The committee made seven recommendations.
It asked that within one month of the report, the Department should share with the committee an Accounting Officer assessment that gave assurance that the selection process met the requirements of Managing Public Money; to avoid accusations that government is selecting towns for political reasons, MHCLG should be upfront and transparent about how it reaches funding decisions as the Towns Fund progresses, particularly the planned competitive round; in its Treasury Minute response, the Department should set out how it will oversee Town Boards, and how it will ensure that all relevant local and regional bodies, and residents, are involved in planning and implementing the deals.
The MPs also said the Department should set out how the Towns Fund programme will secure positive, long term outcomes, and the measures of success it intends to use to monitor and evaluate its impact; from the end of March 2021, the it should write to the committee with annual updates to provide assurance that it is spending the money well; the Government should use the opportunity provided by the Spending Review to be clear about the strategic fit of the Towns Fund programme with other such schemes; and the Department should set out how it is responding to the impact of Covid-19 on towns and their ability to implement their proposals for spending.
An MHCLG spokesperson said: “We completely disagree with the committee’s criticism of the Town Fund selection process, which was comprehensive, robust and fair.
“The Towns Fund will help level up the country, creating jobs and building stronger and more resilient local economies.”