An MP has described “great anxiety” among Lincolnshire steelworkers who he said face losing their jobs by Christmas.

Martin Vickers told MPs that closing British Steel blast furnaces in Scunthorpe would affect the supply chain which comprises “many thousands of people and many businesses” throughout the wider region, including his Brigg and Immingham constituency.

At the House of Commons despatch box, Labour industry minister Sarah Jones vowed to spend £2.5 billion “to rebuild the steel industry”.

The money would sit alongside a separate £500 million package for Tata Steel in Port Talbot, South Wales, to build an electric arc furnace to replace the existing coal-powered process.

British Steel announced it would close its blast furnaces in Scunthorpe late last year, and unveiled plans to roll out electric arc steel manufacturing if it gets “appropriate support from the UK Government”.

Ms Jones said: “The inheritance this Government received from the party opposite was nothing short of a disgrace on steel – over a decade of lurching from crisis to crisis, with no clear plan to safeguard the future of a competitive domestic steel industry.

“But this Government is determined to change that. We have been working hard over the summer to set a clear forward direction on steel and resolve a number of complex issues only made worse by the indifference of the last government.”

The minister added: “This Government is clear, as the Secretary of State has made very clear, that decarbonisation must not mean deindustrialisation. Discussions regarding the transformation of Port Talbot have continued at pace over recent weeks, involving both the company, the workforce and the Welsh Government.”

Mr Vickers replied from the Conservatives’ benches: “I will ignore the political comments of the minister and focus on what is more important, and that is the future of thousands of workers, particularly at the Scunthorpe works, part of which falls within my Brigg and Immingham constituency and where many hundreds of my constituents work.

“There have been widespread media reports suggesting that coke would stop being imported from October. That would mean production would be stopping in Scunthorpe by Christmas, and there are rumours concerning the fact that employees will be given notice very soon.

“This is obviously creating great anxiety amongst those directly employed by British Steel, and also those in the supply chain which, particularly in northern Lincolnshire, extends to many thousands of people and many businesses.”

The minister said it was a “statement of fact” that “the previous government allowed the steel industry to decline”, and added: “It’s not political.”

She said Mr Vickers was “right in his analysis about the concern that people are feeling, the unease, the importance of these jobs, and the worry that people must be feeling”.

Conservative shadow business minister Greg Smith pressed Ms Jones on whether the minister had discussed electric arc furnaces with British Steel, and whether the firm would switch to foreign imports from China to fulfil its UK supply chain obligations.

“Now we see, quite clearly, Labour’s plans for decarbonisation do in fact mean deindustrialisation, that the drive for green steel will mean fewer jobs, not more,” Mr Smith said.

Ms Jones said: “This Government does understand the importance of steel. That’s why we are committing £2.5 billion from the national wealth fund on top of the £500 million set aside for Port Talbot, and we will be developing a strategy that will enable the steel industry to grow.

“He knows that I cannot comment on commercial and confidential conversations that we are having.”

North Lincolnshire Council granted British Steel planning permission for a new electric arc furnace in Scunthorpe last April.

Redcar and Cleveland Borough Council has also given the green light to plans for an electric arc furnace at the firm’s Teesside site, as part of its £1.25 billion decarbonisation plan.

“Our desire to dramatically reduce our carbon footprint, coupled with current market conditions, means we can’t wait and need to transform our business as quickly as possible,” British Steel chief executive Xijun Cao said last November, unveiling the plan.

“And while decarbonisation will not happen overnight, it’s imperative we take swift and decisive action to ensure a sustainable future for British Steel.”