Ministers could force Dyson to hand back £5m in taxpayer cash after the company abandoned its government-backed plans to develop an electric car.
The Telegraph understands the Department for Business, Energy and Industrial Strategy is currently in talks with Dyson, which yesterday made a U-turn on its ambitious car project, unveiled to much fanfare two years ago.
Dyson's project, consisting of plans to build a "radically different" car, had received a £5m grant as part of the UK's National Infrastructure Delivery Plan.
In documents published in 2016, the Government had said the money would "secure £174m of investment in the area, creating over 500 jobs, mostly in engineering".
Dyson had initially been given a grant of £16m but said on Friday it had only drawn down £5m and would not be drawing down the rest.
The company itself had set aside £2.5bn to develop the electric car, going into areas such as research into new technologies, including robotics, as well as battery development.
The money will now be spent on growing its education institute, the Dyson Institute of Engineering and Technology as well as into developing new technologies, it said yesterday.
Dyson added the "funding we have received from the UK Government is to support Dyson’s research and development of battery technologies", and said such battery development would continue irrespective of its closure of the car project.
However, questions over whether the taxpayer money should be allocated elsewhere emerged on Friday.
Layla Moran, the MP for Oxford West and Abingdon, said it was "more important than ever that we lead the way when it comes to innovation".
"We need reassurances that the public money given to Dyson by the Government to develop battery technology will still be spent in the UK on research related to electric vehicles," she added.
Unions also voiced concern over the effect scrapping the project would have on staff working in the industry.
Mike Clancy, the general secretary of Prospect, the main union for engineers and science professionals, said it was "a real kick in the teeth to see a grant that was supposed to create 500 UK jobs going to waste", especially when "precious little funding" has been put into low carbon innovation.
The Telegraph understands that the Government can require companies to return money, with decisions around this made on a case-by-case basis.
A BEIS spokesman said it would "continue to engage with the company" on its funding.