Culture secretary Jeremy Hunt is pressing ahead with plans for local TV stations despite a critical report on the idea.

He told the Today Programme on BBC Radio Four this morning that the absense of a city TV sector in the UK represented a “market failure.”

However the panel set up under investment banker Nicholas Shott to look into the idea has cast further doubt on its viability in an interim report published today.

It says advertising alone will not be enough to pay for the network of new stations and that it may need a big corporate sponsor to get off the ground.

Mr Hunt is to lift restrictions on cross-media ownership to allow newspaper publishers who already own big city titles to also control TV stations.

However regional publisher Trinity Mirror, which owns the major newspaper titles in Birmingham, Manchester, Liverpool, Newcastle and Cardiff, has previously expressed strong reservations about the business model.

In a letter to Mr Hunt today, Mr Shott said the stations were more likely to succeed in urban areas, but that even there “the economics of a TV business funded mainly by advertising will still be challenging” and “additional revenue sources” would have to be explored.

He said a multi-million pound corporate sponsorship deal could be one way to make it work.

“We believe there may be scope for the local TV sector collectively to be sponsored (at least in the early years) by a large corporate wishing to be seen to support local/community life – a reasonable parallel for this is Barclays’ sponsorship of the London bicycle scheme, worth £25 million over five years,” he wrote.

He added that stations could be hosted by existing channels and that discussions had started with “senior management” at the BBC which were showing “early promise”.

Mr Hunt will argue the case for more local television in a speech to the Royal Television Society at the Barbican Centre in London.

He will say that an expansion of superfast broadband and the removal of cross-media rules preventing companies controlling newspapers, television and radio stations will all help make the plan more likely to succeed.