A senior Tory has blasted ministers over the end of steel-making in Britain – claiming Labour caved in to union pressure and backed an 'unviable' site for new furnaces.

Tees Valley mayor Lord Houchen said work could 'start tomorrow' to develop an electric arc furnace on part of the former Redcar Steelworks on Teesside – which closed a decade ago – as the land has been cleared and there is an electricity connection.

But he claims Labour bowed to union pressure to instead pursue development of two electric arc furnaces at Scunthorpe to protect jobs.

The plans are now in jeopardy after British Steel's Chinese owner Jingye said it could no longer prop up the existing blast furnaces at Scunthorpe, which are making losses of £700,000 a day.

On Wednesday, the firm rejected the Government's offer of a £500m subsidy as insufficient and 24 hours later launched consultation on closing the furnaces – the last producing virgin steel in Britain – and laying off up to 2,700 workers. 

Originally, there were plans to build one electric arc furnace in Teesside and one at Scunthorpe. But the Redcar proposal was abandoned in January even though planning permission was granted last April.

Instead, both new furnaces were to be built at Scunthorpe.

Houchen claimed ministers were 'trying to fit a square peg into a round hole by saying we want steel production in the UK but make sure it goes back to Scunthorpe to try to limit job losses in the town'.

Speaking to the Today Programme on BBC Radio 4 yesterday, he said: 'The fact is, the Government are trying to politically gerrymander the investment into Scunthorpe.

'British Steel made a financial submission to build a steel-making plant on Teesside, we have the planning permission, we could start building literally tomorrow, and until the unions got involved and the Labour Party started backing them, that was always the plan.'

Houchen's office told the Mail that development of the furnaces at Scunthorpe was not commercially viable. The site still needs to be cleared and a suitable electricity connection installed. But an industry source said the big problem for Redcar is that it does not have the workforce, whereas Scunthorpe does – if the existing furnaces can be kept going until the electric arc replacement is built.

A Department for Business and Trade spokesman said: 'We don't recognise Lord Houchen's claims, but we know the situation at British Steel is deeply worrying. This Government has been clear there's a bright future for steel-making in the UK, committing up to £2.5bn to rebuild the sector where others failed.

'And we will soon publish a Plan for Steel setting out how we can achieve a sustainable future for workers, industry and local communities, including Teesside.'