The European Commission has blocked about 10 per cent of an pounds 80m grant package that the Government is contributing towards Jaguar's planned pounds 400m car plant.
But the Department of Trade and Industry said yesterday that it would make up the shortfall through indirect subsidies for training and infrastructure.
The DTI and Brussels officials have been at loggerheads over the package, with the EC's competition office accusing London of dragging its feet when asked to provide details of the grant.
Jaguar's new manufacturing facility is intended to build a future small model, but Ford, the company's parent, threatened to take the project to America unless it got the grant.
Jaguar was awarded pounds 48m in regional selective assistance and pounds 32m in indirect subsidies from local authorities and agencies, such as the Training and Enterprise Council.
The DTI expected the aid, awarded last summer, to be approved as a formality, but Brussels investigated the regional assistance package under its unfair competition rules.
Karel van Miert, the competition commissioner, is due to announce at the end of this month that about pounds 8m of the package constitutes unfair competition. Using an obscure economic formula, Brussels said the plant could have been built more cheaply in another European country.
The DTI said yesterday that such a comparision was irrelevant, because Ford was threatening to build the plant in America, not another European country. But a spokeswoman said: "If Jaguar are happy, then we are happy." The DTI is going to arrange that the shortfall is channelled into extra training, infrastructure and property development.
DTI representatives had made several visits to Brussels to try and iron out the problems, and EC officials went to Birmingham for extensive talks with Jaguar suppliers. One local MP said the matter had put "great strain" on relations between London and Brussels, and several letters were exchanged between Mr van Miert and Ian Lang, the trade secretary.
Jaguar said yesterday that it was confident that all the money promised would be given, and that the last hurdle in the way of the pounds 400m investment had been removed.
The investment to build Jaguar's new X200 sports car will create several thousand jobs, and double Jaguar's output to about 100,000 vehicles a year.
Ford's feasibility studies are said to have discovered that the Jaguar image would not be severely damaged if the car were made in America, the UK company's biggest market.
Meanwhile, the EC has begun an investigation into subsidies paid to German shipyard Jos L Meyer to help it win a contract to build two luxury cruise ships for Malaysian company Genting International.
A Commission official said Kvaerner, which bid unsuccessfully for the contract, complained that the subsidies had been instrumental in securing the deal for Meyer.Reuse content