The business secretary, Alok Sharma, overrode the concerns of his senior official when the government took a £400m stake in the failed satellite company OneWeb.
The UK is part of a consortium with India’s Bharti Global which won a bidding war for the company, which went bankrupt earlier this year while trying to develop a space network to deliver broadband.
The investment in the loss-making company was part of a government drive to make “high-risk, high-payoff” investments of the kind advocated by 10 Downing Street adviser Dominic Cummings. Ministers hope it will compensate for the loss of access to the EU’s Galileo programme after Brexit.
However, Sam Beckett, the acting permanent secretary at the Department for Business, Energy and Industrial Strategy raised serious concerns about the purchase in a letter sent on 26 June that was made public on Wednesday.
She told Sharma that an assessment by the UK Space Agency had identified “substantial technical and operational hurdles” that OneWeb would need to overcome in order to become a “viable and profitable business”.
There was a “high likelihood” that further taxpayer funding would be required to complete OneWeb’s satellite constellation.
Beckett said: “I completely understand your, the prime minister’s and the chancellor’s interest in wider benefits such as the potential long-term geopolitical advantages for foreign policy and soft power that would come with sovereign ownership of a fleet of satellites.
“Moreover, I do not underestimate the potential opportunity that this investment represents for UK interests globally.
“It would be the first megaconstellation operator, if it succeeds, and would have the potential to connect millions of people, in particular those in remote, rural locations without broadband access.”
But Beckett said it was an “unusual” purchase for government and there were significant risks. “While in one scenario we could get a 20% return, the central case is marginal and there are significant downside risks, including that venture capital investments of this sort can fail, with the consequence that all the value of the equity can be lost.”
She said she could not be sure that the investment met Whitehall’s strict value-for-money requirements and so requested a formal order, a ministerial direction, from Sharma to proceed.
The business secretary told her that “even with substantial haircuts to OneWeb’s base case financial projections the investment would have a positive return”.
As well as the benefits of improved broadband access, the scheme could signal “UK ambition and influence on the global stage”.
Darren Jones, chair of the Commons business, energy and industrial strategy committee said: “The secretary of state’s use of a ministerial direction to push through the purchase of a stake in OneWeb against the advice of his own permanent secretary heightens concerns around this investment and about the prospects of this delivering UK jobs and value for taxpayers’ money.
“It also prompts further questions about how the government arrived at this decision and how it came to plump for this largely US-based bankrupt satellite company.”
He said that “now more than ever”, the government needs to ensure that it is spending taxpayers’ money as “prudently and wisely as possible”.
“Using nearly half a billion pounds of taxpayers’ money to gamble on a ‘commercial opportunity’ while still failing to support manufacturing jobs with a sector deal is both troubling and concerning.”
The UK and mobile operator Bharti are each investing $500m (£400m), with Britain acquiring a “significant equity stake” in the company.
It will enable OneWeb, which has its headquarters in London and a manufacturing base in Florida, to complete the construction of a constellation of low Earth orbit satellites providing enhanced broadband and other services to countries around the world.