Britain's second-largest steel producer is on the brink of collapse amid growing signs that an emergency government loan would fail to materialise, putting a total of close to 25,000 jobs at risk.

Sky News has learnt that British Steel, its lenders and Whitehall are preparing for an insolvency to take place within 48 hours, with EY expected to be formally appointed as administrators on Wednesday unless a deal is struck by Tuesday afternoon.

If last-minute talks fail to secure a solvent deal, British Steel's collapse could result in more than 4,000 redundancies at its giant Scunthorpe steelworks, job cuts at its other sites, and as many as 20,000 more jobs in its supply chain also jeopardised by the crisis.

Image: The company was seeking a taxpayer loan to avoid collapse

Insiders said that a request to the government for emergency financial support had been reduced from £75m to around £30m, with British Steel's shareholder - Greybull Capital - and lenders agreeing to inject new money into the company.

Lenders are also understood to have released their security in order for a new government loan to be made on secured terms.


Sources cautioned that after days of brinkmanship between the different stakeholders, a compromise could yet be struck, although they conceded that such an outcome looked increasingly unlikely.

One said that British Steel's lenders and directors had resolved to place the company into administration on Wednesday if a final deadline for a deal on Tuesday afternoon was not met.

The lurch towards insolvency comes just days after a statement by British Steel appeared to indicate that it had sufficient financial support to survive for the foreseeable future.

Last Thursday, the company said that it had the backing of shareholders and lenders with operations continuing as normal.

Sky's economics editor Ed Conway explains the demise of the steel industry in the UK.

"As the business navigates the significant uncertainties caused by Brexit, and explores options to strengthen the business for the long term, we are pleased to confirm that we have the required liquidity while we work towards a permanent solution.

"We are grateful for the support that our stakeholders and the British government have provided to date."

However, talks with Business Secretary Greg Clark and his officials are said to have stalled the last few days, with a series of missed deadlines, leading British Steel's directors to determine that an insolvency process is all but unavoidable.

If confirmed, the bankruptcy of such a major employer in Lincolnshire, with a steel plant dating back more than 150 years, would be a shattering blow both to the local economy and the national industry.

It would ignite a fresh row about the extent to which the absence of a Brexit deal is constraining the ability of British exporters to trade with European customers, and will also raise questions about recent financial arrangements entered into between the government and British Steel.

Sky News revealed last week that the company was seeking a loan of up to £75m from the government, with the outline terms said to have been agreed alongside a £120m bridging loan announced by Mr Clark on 1 May to help British Steel pay an EU carbon emissions bill.

Delays to the second part of the funding support, however, prompted some existing lenders to question whether to call in their loans.

Sources said that talks involving British Steel, Greybull and its lenders were continuing late into Monday night.

They added that a slump in orders from European customers ‎amid uncertainty about potential trading arrangements with the EU in the event of a no-deal Brexit was among the factors responsible for the company's deteriorating performance.

Image: British Steel has declined to comment

British Steel has also been adversely affected by sterling's weakness and the escalating tariff war between the US and China, analysts said.

In a worst-case scenario, British Steel's collapse could trigger the end of steel production at Scunthorpe unless a buyer or new investors are found for the business.

The official receiver is said to have been notified about the ongoing situation, partly because of the significant environmental risks associated with the possible decommissioning of such a major industrial site.

British Steel's Scunthorpe site, which is responsible for producing 2.8m tonnes of steel each year, is the biggest supplier to Network Rail.

Last autumn, the company axed about 10% of its 5000-strong workforce in what it said was an attempt to "streamline" its operations and preserve its long-term future.

Nic Dakin, the local Labour MP, said at the time that the government had failed to provide the steel industry with adequate support.

On Monday, ministers attempted to rebut those suggestions by signing a charter aimed at maximising the amount of UK-produced steel used in British construction and infrastructure projects.

The crisis comes less than two weeks after a joint venture between Tata Steel and Germany's Thyssenkrupp was abandoned amid opposition from the EU, raising renewed doubts about the future ownership of Tata's steelworks at Port Talbot.

Collectively, the uncertain fate of the UK's two largest steel plants heralds further anxiety for steelworkers, thousands of whom have already been forced to agree pay and pension cuts to keep their employers afloat.

The Scunthorpe site is a pivotal part of the UK's steel production capability, and its purchase from Tata Steel ‎by the private investment firm Greybull almost exactly three years ago was seen as a landmark moment in signalling investor confidence in the industry's prospects.

Mr Clark, who made a statement in the House of Commons on 1 May about the carbon emissions loan, said the decision to intervene was supported by the independent industrial development advisory board.

Unless the bill had been settled by the end of April, British Steel would have been hit by "an immediate and unremovable fine of half a billion pounds", he added.

Mr Clark described the decision to purchase the necessary carbon credits on British Steel's behalf was "a unique one in exceptional circumstances".

British Steel was brought back from the brink of closure after being acquired from the Indian giant Tata Steel in 2016.

The company broke even in its ‎first year after Greybull's takeover and has reported positive earnings before interest, tax, depreciation and amortisation in each year since then.

British Steel, Greybull and the Department for Business, Energy and Industrial Strategy all declined to comment.