P&O Ferries is suing the UK government after Eurotunnel was given £33million of taxpayer money in an out-of-court settlement.

The Department for Transport (DfT) was forced to pay the train operator after it had challenged the procurement of no-deal Brexit shipping contracts.

The government had awarded contracts worth more than £100m to Brittany Ferries, DFDS and Seaborne Freight to provide extra capacity across the Channel to ease congestion in the event of a no-deal Brexit.

As part of the out of court settlement, Eurotunnel agreed to make improvements to its terminal.

But P&O said the government’s decision to pay out put its business at a “competitive disadvantage”.

A P&O Ferries spokesman said: “We can confirm that we have initiated legal proceedings against the government over its £33m payment to Eurotunnel.

“We have repeatedly made clear during decades of providing vital transport services between Britain and the continent that we are happy to compete with other providers on a level playing field.

“We also fully accept that it was prudent of the government to make contingency plans to protect international supply chains in the event of a hard Brexit.

“However, we do not believe that the payment of £33m of public money to Eurotunnel to settle its legal challenge to these plans is fair or reasonable.

“It is explicitly designed to be invested in the tunnel’s infrastructure and if left unchallenged would put our services at a competitive disadvantage.”

The DfT said the Channel Tunnel operator would be using the money to improve facilities in Folkestone, Kent, including installing new scanners and changing traffic routing.