A BUY-OUT deal for British Steel was looking increasingly likely to collapse last night– but the government is hopeful of securing an alternative agreement.

Fears that the takeover deal with Turkish military pension fund Ataer Holdings could fail have been building for a few days as the company reportedly failed to negotiate price decreases with its suppliers.

Ataer has been in exclusive talks with the government for the last ten weeks in a deal it was hoped would rescue 4,500 jobs – including the 700 at Lackenby and Skinningrove on Teesside. The government is understood to have offered potential buyers grants and loans worth £300m to try to clinch a deal.

Tees Valley Mayor Ben Houchen said last night: “I think it’s important we wait to see what the facts are. As I understand it, Ataer continue to engage with the Government on the finalisation of this deal and are still excited and motivated to bring it to a positive conclusion.

"While today’s news is concerning, I would be cautious on relying on speculation at this stage and I remain confident that a suitable deal can be reached.

"During the period of exclusive talks between Ataer and the Official Receiver, the government rightly remained open to talks with other global steel companies who have an interest in buying British Steel. We shouldn’t put all of our eggs in one basket as we must do all we can to protect British Steel and protect local jobs.

“British Steel remains protected by a Treasury-backed indemnity, workers are still being paid on time and in full and the company’s order book remains strong."

The Insolvency Service will now start talking to other potential buyers.

British Steel went into liquidation in May, putting 5,000 direct jobs at risk, and up to 20,000 more among suppliers.

A statement from the Official Receiver said: "While discussions with Ataer are continuing, discussions with other parties who have expressed continued and renewed interest in acquiring the whole British Steel business will now be possible. Diligence team members from these parties are expected to visit the company's sites over the coming days and weeks. Ataer remain very much interested in acquiring the business and we remain in detailed discussions with them to conclude a sale."

Chris McDonald, chief executive officer of the Teesside-based Materials Processing Institute, said:"British Steel is a vital component of the UK economy, which not only supports many more supply chain jobs, but is important to the defence sector and in the creation of a low carbon economy. Strong and decisive action is needed to produce a solution quickly, either in the form of a new buyer or putting together a new deal."