Despite “extensive” negotiations with the government, the UK’s largest bioethanol plant is to close due to the UK-US trade agreement, according to the firm that owns it.

Consultations have begun with the more than 160 employees at Vivergo’s Hull site, with all manufacturing to cease before 13 September if no funding is agreed with government, the business said.

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The wind-down of the factory is attributed to the recent agreement between the US and UK, which allowed for tariff-free US ethanol to enter the UK.

The agreement “undermined” the commercial viability of Vivergo, Primark’s parent company Associated British Foods (ABF) said regarding its bioethanol business.

“The situation has been made significantly worse by the UK’s trade deal with the US”, it said.

Unless the UK funds the company’s short-term losses and comes up with a longer-term solution, Vivergo will shut after the staff consultation and its contractual obligations are met.

‘Uncertain’ talks

The government committed to formal negotiations on a sustainable solution, ABF said in a regulatory update, but the outcome is uncertain.

As a result of that uncertainty, consulting staff on “an orderly wind down” is taking place at the same time.

“Extensive” discussions had already been under way with government in an effort to find a “financial and regulatory solution” so Vivergo can operate on a “profitable and sustainable basis”.

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It had set a deadline of Wednesday for that solution to be delivered, the update said.

Bioethanol is a renewable fuel made from plants. Vivergo manufactures the fuel from wheat.

In return for the UK agreeing to allow American ethanol to enter tariff-free, the US said it would reduce tariffs on imports of UK cars and steel.

In response to the news, a government spokesperson said: “We recognise this is a concerning time for workers and their families and it is disappointing to see this announcement after we entered into negotiations with the company on financial support yesterday.

“We will continue to take proactive steps to address the long-standing challenges the company faces and remain committed to working closely with them throughout this period to present a plan for a way forward that protects supply chains, jobs and livelihoods.”

The government is snubbing a £25bn renewable energy project which promised to import enough solar and wind power from Morocco to meet nearly a tenth of the UK’s electricity demand.

Sky News has learnt that Ed Miliband, the energy security and net zero secretary, has decided not to proceed to formal negotiations with Xlinks, a privately owned company, about a 25-year price guarantee agreement.

A ministerial statement is expected to be made confirming the decision later on Thursday.

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The government’s move to snub Xlinks after protracted talks with the company will come as a surprise to energy industry executives given the company’s pledge to deliver large quantities of power at a price roughly half of that to be generated by new nuclear power stations.

Xlinks, which is chaired by the former Tesco chief executive Sir Dave Lewis, had been seeking to agree a 25-year contract for difference with the Department for Energy Security and Net Zero (DESNZ), which would have guaranteed a price for the power generated by the project.

One Whitehall insider said its decision was partly motivated by a desire to focus on “homegrown” energy supplies – an assertion queried by industry sources.

Sir Dave told The Sunday Telegraph earlier this year that Xlinks would switch its focus to another country if the UK government did not agree to support the project.

The company is now expected to explore other commercial opportunities.

Xlinks had not been seeking taxpayer funding for it, and claimed it could help solve the “intermittency problem” of variable supply to UK households and businesses.

Reducing manufacturers’ energy costs was the centrepiece of the government’s industrial strategy launched earlier this week.

Sources said that market-testing of the financing for Xlinks’ construction of a 4,000-kilometre cable between Morocco and the Devon coast had been significantly oversubscribed.

Xlinks’ investors include Total, the French energy giant, with the company having raised about £100m in development funding so far.

The company has said it would be able to deliver energy at £70-£80-per-megawatt hour, significantly lower than that of new nuclear power stations such as the one at Sizewell C in Suffolk to which the government allocated more than £14bn of taxpayers’ money earlier this month.

It was unclear whether the growing risk of undersea cable sabotage was one of the factors behind the government’s decision not to engage further with Xlinks.

In an interview with Sky News in 2022, Sir Dave said Xlinks enjoyed low geopolitical risk because of Britain’s centuries-old trading relationship with Morocco and the north African country’s ambitions of growing the energy sector as a share of its exports.

“The Moroccan government has recognised that exporting green [energy] is a very important part of their economic plan going forward, so they have an export strategy,” he said at the time.

“The Sahara desert is probably one of the best places in the world to generate renewable energy from… so you have a very long period of generation.

“And if you’re capturing that energy and adding some battery storage, you can generate energy to cover a little bit more than 20 hours a day, which makes it a fantastic partner for the UK.”

The former Tesco chief added the quality of modern high-voltage cables meant energy could now be transported “over very long distances with very, very few losses”.

Sir Dave said the technology risks associated with the project were relatively small, citing examples of much longer cable links being planned elsewhere in the world.

“The benefit here is that it’s proven technology with a very committed reliable partner with a cost profile… that we will never [be able to] match in the UK,” he said.

A spokesperson for DESNZ said it did not comment on speculation, while Xlinks declined to comment on Thursday.

Plans to better protect vital UK industries and help businesses export have been revealed by the government, as the world continues to grapple with the effects of Donald Trump’s trade war.

A trade strategy, to be published on Thursday, aims to make the UK the best-connected country to do business, aided by looser regulation and increased access to finance.

It forms part of the government’s efforts to get business back on side after the backlash which followed the tax-raising budget and its “plan for change” to boost meagre economic growth.

The plan follows hot on the heels of a trade deal which spares the UK from some of the US president’s most punitive duties, and a more wide-ranging agreement with India.

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The strategy – the first since Brexit – also aims to capitalise on a relaxation in some EU rules on trade, and the separate industrial strategy outlined earlier this week that will give energy-intensive businesses help in bolstering their competitiveness through cuts to their bills.

Jonathan Reynolds, the business and trade secretary, said: “The UK is an open trading nation but we must reconcile this with a new geopolitical reality and work in our own national interest.

“Our Trade Strategy will sharpen our trade defence so we can ensure British businesses are protected from harm, while also relentlessly pursuing every opportunity to sell to more markets under better terms than before.”

The department said that the capacity of UK Export Finance, the UK’s export credit agency, was to be expanded by £20bn and funding would also be set aside to tackle complex regulatory issues and remove obstacles for exporters.

The US trade war provides both opportunities and threats to UK firms.

The steel sector is to be consulted on what new protections can be put in place from June 2026 once current safeguards, covering things like cheap Chinese imports, are due to expire.

The trade and industrial strategies have been revealed at a time of crisis for both steel and chemicals linked to high costs.

British Steel is now under the control of the UK government in a bid to protect the country’s ability to produce so-called virgin steel following the closures of the blast furnaces at Tata’s Port Talbot works.

It was announced on Wednesday that Saudi firm Sabic was to shut its Olefins 6 ethylene plant at Wilton on Teesside, leaving more than 300 jobs at risk.

Like British Steel’s owner Jingye, Sabic has blamed high energy bills.

Eliminating some of those costs, under the industrial strategy plans, would not kick in until 2026 at the earliest.

At the same time, Associated British Foods (ABF) is to make a decision on Thursday on whether to shut the UK’s largest bioethanol plant in Hull.

ABF has complained that the Vivergo Fuels factory has had the rug pulled from under it by the UK government as its recent trade deal with the US allows subsidised US ethanol into the country.

A second UK bioethanol plant, owned by Ensus, is at risk of closure on Teesside.

The steel industry lobby group said the trade strategy would build on work in the industrial strategy to provide a more stable platform for the sector.

UK Steel’s director general Gareth Stace, said: “For too long, the government has been hamstrung by self-imposed rules that allow bad actors to take advantage of our open market.

“This has enabled state-subsidised steel to rip market share away from domestic producers, at the cost of thousands of good jobs in some of the most economically vulnerable regions in the country, and fracturing manufacturing supply chains, making us more reliant on imports.

“We need swift and decisive action to build a trade defence regime that is fit for purpose and in place before current safeguards expire in 2026.

“With the right tools and the political will to use them, the UK can reassert control over its steel market, protect skilled jobs, and give investors the confidence that the UK steel sector has a strong and sustainable future.”