The Government must refuse Chinese demands for compensation over the nationalisation of British Steel as the company is essentially worthless, a Labour grandee has said.

Clive Betts MP spoke out after Beijing-based steel group Jingye, the company’s previous owner, threatened to pursue international arbitration over the government’s takeover of the steelmaker which it branded ‘blatant extortion and flagrant violation of international law’.

Betts, deputy chairman of the Public Accounts Committee, told The Mail on Sunday: ‘It’s losing money, it’s a loss-making entity. How can it be worth anything?’

He insisted the government was right to seek the view of an ‘independent assessor’, which he believes was necessary to ‘satisfy the Chinese’.

But Betts, the first senior Labour figure to speak out on the controversy, added: ‘We must not be seen to pay anything for this.’

His intervention comes after Mike Warburton, a former tax director at accountancy group Grant Thornton, said it would be ‘madness’ for the government to pay anything for British Steel as hundreds of millions of pounds worth of losses had left the business essentially ‘worth nothing.’

The government seized management control of British Steel - which operates the country’s last two blast furnaces producing virgin steel at Scunthorpe, North Lincolnshire and is seen as vital for national security reasons, in April last year following an emergency sitting of Parliament where legislation was passed to stop Jingye shutting the furnaces.

It was fully nationalised earlier this month (July 16) after being proposed in the King’s Speech in May. 

But the move sparked outrage from Jingye which has threatened to take legal action against the UK government and British Steel’s management.

Last week, the firm published a statement on Chinese social media platform WeChat accusing ministers of disregarding ‘investment’ in the steelmaker.

Jingye claimed the government’s actions had damaged the UK’s credibility and unsettled international investors.

China’s foreign ministry has also called for ‘mutually acceptable’ compensation, adding: ‘How the UK handles this matter will directly affect Chinese investors’ perception of the UK investment environment’.

The Department for Business and Trade has said draft compensation regulations will be revealed ‘in the Autumn setting out the process for compensation, under which the independent valuer would determine what, if any, is payable’.