The former Sheffield Brightside and Hillsborough Labour MP also warned that Sheffield must break down historic antagonism between it and its surrounding neighbours if devolution in the region is to work.
He was speaking to The Yorkshire Post as a major report on the city said growth needed to be accelerated, and consideration given to Sheffield’s relationship with the City Region in this context.
Lord Blunkett, who is chair of the Sheffield Executive Board, which commissioned the report, said: “We have a problem and that is that the Government has not said that city regions will be able to get their own investment.
“We don’t have a substantial pot of investment so we have got to be given the power in the city regions to generate that ourselves.
“We have got to find ways of being able to counter that in the regions. Sheffield, Leeds, Manchester and Birmingham have to be able to generate real economic activity from within.
“Talking about the Northern Powerhouse is meaningless unless we are able to do things on the ground.
“Whilst unemployment has dropped in England as whole, it is going up in Yorkshire and the Humber. We are not in a good place and the Government needs to respond.”
The State of Sheffield report said that while the city had shown “a degree of resilience” to the recession, “structural weaknesses” persist, and levels of economic output per person where the lowest in the Sheffield City region when compared with all other comparator areas and other city regions.
It said that the city region “as a whole” would benefit from strengthening growth in Sheffield, improving links between neighbouring towns and cities, and building on the relative strengths and distinctive assets across the region.
Lord Blunkett said the other South Yorkshire cities and towns must overcome the “anti-Sheffield feeling” he witnessed first in the 1970s when serving on South Yorkshire Metropolitan County Council if it was to make devolution as success.
He said: “In Greater Manchester there is an acknowledgment from all involved that the core city of Manchester is the key to driving economic growth across the region. That has never been fully accepted in South Yorkshire and the East Midlands. There has been too much antagonism between Sheffield and the surrounding cities and we need to break that down.
“Sheffield has the difficult task of both leading and listening.
“There will come a moment when it is win-win and people will see what they are achieving, and that has to be the main driving force.”
A Treasury spokesperson said: “Our historic devolution deal with Sheffield City Region opens up £900 million worth of new funding to South Yorkshire. The key to these deals are that they are led by local areas and there are no restrictions on local leaders attracting private investment.
“This deal will mean a new directly-elected Mayor who will oversee a range of powers devolved from government including responsibility over transport budgets; franchised bus services and strategic planning.
“Unemployment is falling faster in the North than the South and today’s new statistics show record employment levels in Yorkshire and the Humber. But in the face of significant turbulence in the global economy, there is always more to do.”