The UK government says it has reached a “new and improved deal” with Tata Steel, confirming it will give a £500m grant to the company.

The money will go towards the cost of building a greener electric furnace in Port Talbot, and matches the amount agreed by the previous Conservative government.

About 2,500 workers are set to be made redundant, with a further 300 expected to be made redundant in future.

The Conservatives say Labour had raised “false hopes” about saving jobs. Business Secretary Jonathan Reynolds acknowledged the package “falls short of what would be my ideal”, but said workers now have more protection, with assurances from Tata on future jobs and investment.

The electric arc furnace will melt scrap steel or iron to produce steel.

Plaid Cymru called the loss of the ability to make new, or virgin, steel an “economic blunder” that would “devastate” local communities.

Tata has agreed to look at future investment opportunities, thought to include the potential for wind turbines to be made in south Wales at a new plate mill.

The Community and GMB trade unions called the plan “not something to celebrate” but “better than the devastating plan announced by Tata and the Tories back in September 2023”.

Business and Trade Secretary Jonathan Reynolds said the agreement gives “hope for the future of steelmaking in south Wales”.

“We know that a cleaner, greener future for UK steelmaking is vital to the industry’s long-term economic stability,” he said.

“The road ahead is not without its challenges but our steel strategy will set forth a positive vision for the future of the industry, backed by our manifesto commitment to £3bn of government investment.”

The government says it will sent out its steel strategy in the spring.

Reynolds told MPs that if the previous UK government had “started these negotiations a year ago, never mind many years ago” he had “no doubt we would have secured an even better deal for the community”.

“Whilst this deal is much improved, I acknowledge very much it falls short of what would be my ideal,” he said.

Tata will offer staff at risk of compulsory redundancy a “comprehensive training programme” providing “recognised qualifications in sought-after skills”. The company says it is offering its best redundancy package to workers losing their job.

The firm expects at least 500 jobs to be created to construct the electric arc furnace.

The deal was agreed on Tuesday in a meeting between the prime minister, Reynolds, Chancellor Rachel Reeves, and Tata chair Natarajan Chandrasekaran and confirmed by the business secretary in the House of Commons on Wednesday.

Welsh Secretary Jo Stevens said it “secures the immediate future of Port Talbot steelworks, lays the foundations for future investment, and enhances protections for the workforce across south Wales, all without further cost to the taxpayer”.

“As well as negotiating a better deal than the previous government, we have already released millions of pounds of funding from the Transition Board to support businesses and workers in Port Talbot and across south Wales.

“While this is a very difficult time for Tata workers, their families and the community, this government is determined to support workers and businesses in our Welsh steel industry, whatever happens.”

In a joint statement, Community general secretary Roy Rickhuss and Gary Smith, general secretary of the GMB, said: “Regretfully we couldn’t secure the support of all stakeholders for our credible alternative decarbonisation strategy, and ultimately the company rejected the basis of our proposals, representing a tragic missed opportunity.

“Under the circumstances representatives of all the steel unions resolved to negotiate the best possible deal, and then put it to a ballot of the membership. This is what we have done, and voting is underway.”

The Conservatives accused Labour of raising false hope that a better deal was on offer, and said the government had finally realised the Tories had done their best to save steelmaking.

Tory Senedd economy and energy spokesman Samuel Kurtz said ministers had been “disingenuous with their promises to the people of Wales and fallen short with their new offer, putting steelworker jobs at risk”.

“Unfortunately, there is no new money yet allocated by the Labour government that promised much more during the election campaign,” he said.

Plaid Cymru business and trade spokesperson Llinos Medi MP said the losing the capacity to make virgin, steel a “serious economic blunder” that will” devastate the communities of Port Talbot”.

“Unions have previously called for additional investment of £683m in Port Talbot to save jobs,” she said. “Meanwhile Germany has invested 1.3 billion euros in decarbonising steel in one region alone this year.

“Can the secretary of state [Reynolds] explain why he won’t match the ambition of workers here and governments of other countries to save Welsh steel?”

Recently retired steelworker Huw Samuel said the upcoming closure of the second blast furnace will signal the end of an era.

“We did foresee the decarbonisation of the industry. However, I don’t think any of us would have predicted how quickly Tata would have made a decision and decided to shut down the coke ovens,” he said.

The 61-year-old worked in the cold mill at the Port Talbot steelworks from 1986 until August 2023.

Mr Samuel said: “Regrettably, furnace number four is going to shut at the end of September which is a terrible, terrible shock. It is going to leave a massive gulf between the shutting down of the furnaces and the heavy end, and the reinstatement of a new electric arc furnace.”

While many of his colleagues were ready to retire, Mr Samuel said many others were young and had families to support.

“Tata pay a good salary, which means you can enjoy it, raise a family and plan for the future.

“That has been taken away,” he said.

“The jobs for young adults, men and women, are not going to be there in Port Talbot.”

Asked if there were any positives to be taken from Tata Steel’s commitment to greener steelmaking in Port Talbot, Mr Samuel said he hoped the electric furnace would give people “the opportunity to retrain and upskill themselves”.

But he added: “It’s very difficult for me to see the positives when there are so many people going to be made redundant.”

First Minister Eluned Morgan welcomed confirmation of the deal, saying the Labour Welsh government stood “shoulder-to-shoulder with the UK government in doing all we can to support workers at Tata Steel and provide a new future for steel production in Wales”.

“In what continues to be an incredibly unsettling situation for many, we will continue to work with all parties to ensure that workers, suppliers and the wider community are supported as the industry transitions to making the green steel that will be vital to the future of the UK economy,” she said.