A defiant Chris Grayling has refused to resign as transport secretary as he came under fire for handing a government ferry contract to a company that does not own any ferries.

The cabinet minister defended his decision to award the £13.8m deal to Seaborne Freight, despite being forced to scrap the contract after saying the company’s major backer had pulled its support.

Labour called on the beleaguered minister to quit, accusing him of “rewriting the textbook for ministerial incompetence”.

The government’s decision to hand one of three no-deal Brexit ferry contracts to Seaborne sparked a major row in December when it emerged that the firm did not own any ships.

Mr Grayling defended the move at the time but cancelled the deal last week after Irish company Arklow Shipping withdrew its support.

Asking an urgent question in the Commons on the issue, Andy McDonald, Labour’s shadow transport secretary, said: “What began as a debacle has now descended into a Whitehall farce. This minister is rewriting the textbook for ministerial incompetence in office.”

He added: “He simply can’t keep blaming others for his own mistakes – this disastrous decision sits squarely with him and with his office.

“Isn’t it the case that his approach to transport and wider Brexit contingency planning is off the Richter scale of incompetence and for the good of the nation, and for the sake of some semblance of faith being restored to this shambolic government, shouldn’t he now at long last do the decent thing and go?”

Mr Grayling hit back, claiming Mr McDonald “brings a new meaning to the words utter hogwash”.

He told MPs that his department was “fully aware” that Seaborne was a “startup business” but that the firm’s plans for establishing a ferry route between Ramsgate and Ostend had been backed by Arklow.

He insisted that “not a penny of taxpayers’ money has gone or will go to Seaborne” and said the decision to award the ferry contracts as part of preparations for a no-deal Brexit was “a responsible decision to make sure that taxpayers’ money is properly protected”.

The SNP also called on Mr Grayling to resign. Its transport spokesperson, Alan Brown, asked: “Given a stunning new level of incompetence which it’s really hard to achieve, when will he go?”

Grayling's biggest failings Show all 8 1 /8 Grayling's biggest failings Grayling's biggest failings Banning books for prisoners Then Justice Secretary Grayling introduced a ban on sending books to prisoners in November 2013. The ban was later deemed unlawful by the High Court PA Grayling's biggest failings Knocking a cyclist off their bike Transport Secretary Chris Grayling knocked a cyclist off their bike by opening his car door in 2016. The footage was released by the recording cyclist a few months after the incident when Grayling complained about London's cycle lanes Guardian Grayling's biggest failings Train timetables fiasco After an Office for Road and Rail report found that nobody had taken charge during a major change to train timetables that left more than one in ten trains being late or cancelled on Northern and Thameslink, Transport Secretary Grayling insisted he was not to blame PA Grayling's biggest failings Unlawful cuts to legal aid The cuts to legal aid for certain categories of prisoner that Grayling introduced as Justice secretary in 2013 were found to be unlawful by the High Court PA Grayling's biggest failings Private probation reversal Theresa May's government has opted to renationalise the supervision of former prisoners after a part-privatisation program begun by Grayling in 2014 was found to be putting the public at risk PA Grayling's biggest failings Ferry contract for a company with no ferries Grayling handed a £14 contract to Seaborne Freight to deliver goods from Ostend to Ramsgate in the event of a no deal Brexit. The contract fell through after the Irish company that Seaborne was relying on to carry out the shipping pulled out PA Grayling's biggest failings Criminal courts charge In 2015, then Justice Secretary Grayling introduced a policy whereby convicted criminals would have to pay from £150-£1200 towards the cost of their case. The policy was criticised for compelling defendants to plead guilty and led to protests by magistrates. The policy was scrapped by Michael Gove when he became Justice Secretary later that year PA Grayling's biggest failings Cyclists not road users As Transport Secretary, Grayling once failed to recognise cyclists as road users PA

As the transport secretary faced heavy criticism in the Commons, Labour’s Angela Eagle added: “Last month the minister came to this house waxing lyrical about how he was going to be supporting startup businesses, and this was Seaborne Freight.

“Is he not even remotely embarrassed that this has fallen to pieces, despite the government’s support, and isn’t he going to come to the house and say sorry for the mess he’s made of this?”

Mr Grayling responded: “This is a startup business that didn’t succeed because its principal backer changed its mind. That is to be regretted, it is a great shame, but I am never going to make an apology for government trying to work with new small businesses.”

The decision to award the contract to Seaborne sparked further mockery last month when it emerged that the company had copied the terms and conditions on its website from a takeaway outlet.

The government is also facing a lawsuit over the process that led to the deals being awarded.

Channel Tunnel operator Eurotunnel has launched a challenge at the High Court, claiming the contracts were awarded after a “secretive and flawed procurement process”.