PUBLIC services could be scaled back if a local authority fails to salvage millions of pounds from SSI UK.

That was the warning from Redcar and Cleveland Council as it revealed possible legal action to recoup unpaid business rates from the crippled steelmaker.

Bosses say services, already under threat by Government cutbacks, are on a knife-edge.

SSI owes the authority £10.7 million in business rates for the 2015/2016 financial year, and failed to meet its first instalment of about £4 million on Thursday (October 1).

According to its latest accounts for 2014/2015, the council says it was forced to rely on emergency Government funding and had to dip into its own reserves to balance the books amid SSI’s woes.

It said it used £10 million from its coffers to make up a business rates shortfall and received a £2.2 million Government grant to cover expected lower income.

Councillor Sue Jeffrey, council leader, said the Government can take step in to make up some of the shortfall if SSI fails to deliver.

However, she said that would still leave the authority losing £3 million a year, putting vital public services at risk.

She said: “We have done all we can to support the company, but we are now in a position where we are obliged to take legal recovery action.

“In the event SSI is unable to pay, the Government will step in to make up some of the shortfall but we still stand to lose £3 million a year.”

SSI has long struggled to pay its bills, with the heavy costs of restarting production at the blast furnace, low steel prices and high raw material costs affecting finances.

In early 2014, the firm resolved a wrangle with the council over a schedule to deliver £9 million of unpaid business rates.

At the time, the authority said the cash was crucial to it balancing its books.

However, Cllr Jeffrey said the impact of its latest cash woes could have wider and deeper implications across the council and the region.

She added: “Other businesses in the SSI supply chain, which may not have been paid, may well struggle to pay their business rates, meaning the council could lose out further.

“This needs to be set against a background of the council facing cuts in Government grant of £11 million this financial year, and with anything up to a further £27.5 million to come.

“This loss of business rates adds to the significant financial difficulties the council is facing and will affect the level of the support we can provide to those impacted by the steel crisis, as well as everyone in our community who depend on us for day-to-day services.”

Redcar and Cleveland Council will hold a meeting next week, which will include an emergency resolution, calling on the Government to save the region's steel industry and its jobs.