The government has scrapped a controversial contract with the company Seaborne Freight which was to have provided a ferry service between Ramsgate and Ostend in the event of a ‘no deal’ Brexit.

The Department for Transport said it had decided to terminate the contract after Irish company Arklow Shipping, which had backed Seaborne Freight, stepped away from the deal.

A DfT spokeswoman said: "Following the decision of Seaborne Freight's backer, Arklow Shipping, to step back from the deal, it became clear Seaborne would not reach its contractual requirements with the Government. We have therefore decided to terminate our agreement.

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"The Government is already in advanced talks with a number of companies to secure additional freight capacity - including through the port of Ramsgate - in the event of a no-deal Brexit.

The decision comes after Thanet council put on hold budget plans that would have cut a planned investment in the port after the transport minister Chris Grayling intervened to ask for more time for the company to come up with concrete plans.

The announcement is a major embarrassment for the government which had faced criticism of his decision to award a contract worth £13.8m to Seaborne Freight.

It emerged that the company had no prior experience in running a ferry service and had no ships.

The company had begun dredging work at the port as part of preparations for it to enable roll-on roll-off ferries to berth.

It had also recently started a recruitment campaign for staff to work at the port.

Thanet councillor Karen Constantine (Lab) said Chris Grayling should resign. She said: “We estimate that it has cost the council around £150,000 to keep the port open [while work was going on]. That is money that could have been spent on vital local services and the government should compensate the council that money.”

She also called for Conservative council leader Bob Bayford to explain what had been going on.

“I cannot think of another example where a government minister has so directly interfered in the process of local democracy. The idea that the port could be ready to provide a service was a mistake.”

She added that the port needed a lot of work to get it ready and time was against it. “The very idea that you could handle volume at the port with no infrastructure and no staff - it is just not going to happen,” she said.

Opposition Liberal Democrat leader at Kent County Council Cllr Rob Bird said: "“Once again, Chris Grayling and the Department for Transport have demonstrated an unparalleled level of incompetence. It was clear from the beginning that Seaborne were never going to be in a position to operate a ferry service out of Ramsgate by the end of March. The DfT’s so-called ‘due diligence’ was a charade."

“This announcement will come as a disappointment for those people hoping for new jobs to be created in the Port of Ramsgate. Unfortunately, though Ramsgate itself may be spared the additional traffic, much of Thanet is likely to be choked with heavy lorries as a result of the Government’s plans to park 6000 HGVs on Manston Airport go ahead.”