Exclusive: Tory donor's campaign to stop loan

By May 25, Ministers had pledged a review of all spending projects approved by the Labour government since January 1, including the Forgemasters deal.

The deal to fund a giant forging press had promised to make the company a world leader in manufacturing components for new nuclear power stations, although it would have required private investment as well.

But given the state of the public finances, the offer of funding had concerned some in business, including Mr Cook, who has previously intervened in Spain in a decision to give Government support to a firm.

Having initially tried Mr Prisk's colleague John Hayes but received no response, Mr Cook, chairman of Sheffield's William Cook Holdings, made no secret of his background – his company having donated 650,000 to the Tories since 2005 – when he emailed to offer the findings of legal advice he had obtained from solicitors Linklaters.

"I am the largest donor to the Conservative Party in Yorkshire and have been since David Cameron was elected leader," he said. "I am delighted you are at last back in power, albeit in coalition. Congratulations on your appointment."

Electoral Commission records show that Mr Cook's firm has indeed donated 650,000 to the party since 2005; other donations are recorded as coming from Andrew Cook, although it is not clear if this is the same individual.

Hailing himself as a "major industrialist", Mr Cook raised the issue of how "Mandelson et al announced an 80m 'soft loan' to a Sheffield firm called Sheffield Forgemasters" in the "dying days" of the previous administration.

Making clear the company was not a competitor, he added: "I have specialised knowledge of the situation which I would like to share with you confidentially. The loan is probably unnecessary and possibly illegal under EU rules. I believe the private sector could provide the required finance without the taxpayer shelling out.

"The taxpayer has already shouldered the burden, wrongly, for Sheffield Forgemasters' 78m pension deficit and there is no business case for requiring the taxpayers to continue financial support. It is a typical labour 'sacred cow'.

"I believed you may be the best person to consider this matter as Vince Cable may find it a difficult nettle to grasp, being as Nick Clegg is a Sheffield MP."

The chain of correspondence reveals that later that same day, Mr Prisk passed on the email to officials. They responded that: "The Minister would like to thank you for your note, and for sharing your concerns". On June 9, Mr Cook wrote again, attaching the copy of the legal advice. "Linklaters' conclusion is that the loan would be in breach of EU State Aid regulations, for the reasons they explain in their letter," he said.

""I am sure this information will be helpful to the Minister. For the record, I am convinced from my own industrial experience that the necessary finance could be raised from the private sector. I myself raised some 200m over the past 12 years for very similar industrial projects.

"I believe the whole matter of this government loan has arisen due to a combination of the enthusiasm of the previous administration to be seen to support a heavy industrial project in an electoral heartland the reluctance of local management to accept outside equity investment."

After the coalition announced that it was axing the loan Mr Cook wrote a letter to the Yorkshire Post, offering "comfort" to Forgemasters chief executive Graham Honeyman, saying: "Equity dilution is the price an owner has to pay when he raises new finance beyond the debt capacity of the business.

"I would be happy to help Dr Honeyman raise his funding package should he wish."