Government facing £2.5bn pensions liability

Bringing the case against the government is the ISTC union, which represents 1,000 steel workers who lost most of their pensions when Allied Steel and Wire collapsed.

The huge potential liability was calculated on the basis that a successful judgement could set a precedent for 65,000 others whose pension benefits have been lost because of company failures.

The ISTC said successive governments had failed to offer protection for pension benefits required by the 1983 European Insolvency Directive.

The move follows 'unsatisfactory' negotiations between the union and the Department of Work and Pensions, The Times reported. The DwP insisted both the present and previous governments had met their obligations.