FRESH plans by a council to use taxpayers’ cash to compete with Southampton docks are potentially a “massive blow” to the city, port bosses are warning.

Proposals for the huge new London Gateway container terminal on the Thames looked to have been torpedoed by the recession with debt hit ports operator DP World putting the £1.5 billion project “under review” in March.

Now it has emerged that Thurrock Council in Essex is hoping to use public finances to step-in and kick-start the project.

It is aiming to have the massive site, which will handle up to 3.5 million containers a year, included in a trial of a new scheme that would allow councils to fund infrastructure schemes.

Southampton, whose status as the second biggest container port in the country would be comfortably eclipsed if the Thames rival is ever built, would see its ambitions to grow and create new jobs undermined, port owner ABP is claiming.

Despite jointly owning the Southampton terminal with DP World, ABP attacked the idea of using public funds, saying it distorted competition and that the need to do so meant London Gateway was now “non-viable”.

It echoes an ongoing row between ABP and Liverpool City Council over its plans to use a taxpayer funded terminal to poach part of Southampton’s lucrative cruise business.

Although the bid sparked howls of outrage from across Southampton, the plan is still with the Government and a decision is expected within weeks. Chancellor Alistair Darling is expected to say whether or not Thurrock Council’s plan can go ahead with its London Gateway backing in his pre-budget report on Wednesday next week.

The London Gateway project, just 25 miles east of the capital, was part of the reason Dibden Bay was turned down. Planning permission is already in place for the London scheme, but lenders were proving hard to find. Then the European Investment Bank approved a £300m loan.

If Thurrock council gets the go-ahead from the Treasury as well, then the project is a significant step closer to becoming a reality.

Port director Doug Morrison said: “Public sector subsidy in the ports sector creates a potential distortion of the marketplace; this distortion is far greater with container terminals, which have always been market-led and have been served well by private sector investment in recent years.

“The fact that the reports suggest that London Gateway would not go ahead without government support suggests that the project has now become commercially non-viable. An unfair helping hand for London Gateway will deal a massive blow for Southampton’s own aspirations to grow its jobs and investment.”

Councillor Royston Smith, Southampton Cabinet member for economic development, said: “You can’t use taxpayers’ money to compete with private companies. It is illegal, unless they change the law, which they might, and it’s immoral.

Captain Jimmy Chestnutt, director general of the Southampton and Fareham Chamber of Commerce and one of the men who led the Dibden Bay application, said: “One of the reasons the Dibden application was turned down was that the secretary of state accepted that there were alternatives and London Gateway was one of those alternatives.

“ABP argued strongly then that it was not viable and the use of public money to enable it to be built is not only a complete distortion of the market but proof that ABP’s arguments were correct.”

A spokesman for Thurrock Council said: “Thurrock Council has done all it can to support DP World in these difficult times.”