Deputy Prime Minister Nick Clegg has rejected calls to rethink the decision to withdraw an £80m loan for expansion plans at Sheffield Forgemasters.
The previous Labour administration had pledged the loan but it was axed by the new government last month.
Mr Clegg, MP for Sheffield Hallam, was challenged by the Shadow Justice Secretary Jack Straw during an exchange in the House of Commons.
The Liberal Democrat leader said the problem was "one of affordability".
Mr Straw said Mr Clegg had originally told MPs that the loan was denied because the company's directors were unwilling to dilute their shareholding in the firm and that this issue had now been shown to be untrue.
'No money left'
But Mr Clegg said that there was no money available for it.
He said Labour former business secretary Lord Mandelson "was writing out cheques to companies like Forgemasters, which he knew would bounce".
He said: "That was wrong - to pretend there could be assistance for a great company like Sheffield Forgemasters when, as the former chief secretary to the Treasury said, there was no money left."
On Tuesday, Forgemasters announced it had shelved plans to buy the equipment to make parts for nuclear power stations.
Chief executive Graham Honeyman said efforts to secure funding for the metal press would be suspended "for the time being".
About 200 jobs would have been created, but the loan was cancelled as part of a package of spending cuts designed to save £2bn.
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