Heavy industry struggling with surging energy costs will only get support if they can prove they have been pushed to the brink of closure, Whitehall sources have said, as industry leaders warned that the package sounded like no more than “flimsy sticking plaster”.

A senior government source said on Tuesday that any scheme for companies would be means-tested, time-limited and repayable to make sure it only dealt with the most severe cases of those about to stop production or go under entirely.

It could run into hundreds of millions of pounds but would be designed as loans, rather than grants, with the aim of taxpayer cash being recovered.

But industry leaders expressed scepticism that this would be enough, highlighting issues such as UK energy costs for the steel sector being up to 80% more than that paid in the rest of Europe.

The proposal to prop up struggling factories has been put forward by Kwasi Kwarteng, the business secretary, who is winning a battle against Rishi Sunak, the chancellor, to get some form of financial support for companies at risk of closure. Kwarteng is now understood to be pushing for a scheme to be approved by the Treasury urgently.

Boris Johnson, currently on holiday in Spain, was on Monday forced to wade into a row between the two cabinet ministers, backing Kwarteng’s pressure for an intervention.

The spat broke into the open on Sunday as a Treasury source accused Kwarteng of being “mistaken” and “making things up” about the chancellor’s involvement in any proposals for a bailout package. Kwarteng formally submitted a request to the Treasury on Monday.

Gareth Stace, the director-general of trade body UK Steel, said that while they welcomed Kwarteng’s intervention they had yet to see details of the proposals he put forward.

He said that without adequate support the industry faced heavy job losses, with plants being forced to close as they could not afford to keep running.

“The key test in this proposal is are we now going to be on an equal footing with steelmakers in Germany?” Stace said. “If this package results in us still paying 80% more for energy than our competitors in continental Europe, then really this will really be a flimsy sticking plaster on what is really a major crisis that we are going through at the moment.”

Steve Barclay, the Cabinet Office minister, stressed that taxpayer cash must be protected in any bailout.

“We’re keen to work with them as we bridge the pressures that they currently face,” he told Times Radio. “There’s a balance here between what support to give and also protecting the taxpayer, given that we have high tax rates, that we have borrowed a very considerable sum over the last two years.

“There are some specific issues around the energy-intensive industries and we’re working with them to understand those and to see what is proportionate for the taxpayer in terms of that response.”

It is thought the total package could run to hundreds of millions of pounds, with industries such as ceramics and paper as well as steel manufacturing among those likely to seek support.

Stephen Kinnock, the Labour MP with the Port Talbot steelworks in his constituency, and chair of the all-party parliamentary group on steel, said the business department had claimed to be powerless when approached about the problems in the past and painted the Treasury as the “bad guys” who were refusing to give financial support. He said the Treasury had, however, refused meetings with the steel industry and directed MPs to the business department.

“The feedback from BEIS (the Department for Business, Energy and Industrial Strategy) has always been: ‘It’s those bad guys at the Treasury and we really want to help you but why don’t you talk directly to the Treasury.’ Which is quite extraordinary really for them to tell us that when they are supposed to be leading on this,” Kinnock said. “The Treasury don’t even answer our letters, and direct us back to BEIS. You get passed from pillar to post.”

He said proposals to help energy-intensive industry such as the steel sector had been put forward for many years, with calls for lower network costs, a cap on wholesale costs and reduction of green levies – which would be politically difficult before the Cop26 climate change conference.

On the idea of loans, Kinnock said: “It gets them out of the political fix of trying to do something more permanent but fundamentally these are issues that have been dogging the steel industry and forcing them to compete with one hand tied behind their back for six years, so I would say this is the time to take the bull by the horns and deal with these issues.”