The government has said it would be willing to take a 25 per cent stake in any rescue of Tata Steel’s UK operations and will be providing debt finance to potential buyers.
A package of support worth hundreds of millions of pounds will be made available.
The announcement follows a second meeting between business secretary Sajid Javid and Tata Global chairman Cyrus Mistry this week in Mumbai where progress on the sales process was discussed.
The UK government has been locked in negotiations with Tata and a handful of potential bidders since the Indian steel conglomerate announced its intention to divest its UK operations.
Steel trader Liberty House, owned by Sanjeev Gupta, has laid out plans to convert Tata's Port Talbot blast furnace to melt down scrap steel but has said the deal would be dependant on tax cuts and the government taking on the Tata's pension deficit.
A Liberty House spokesman said: "The UK Government announcement today is interesting and encouraging and will help our team with their analysis of the Tata opportunity, which is underway at the moment."
Meanwhile Tata Steel's Port Talbot chief Stuart Wilkie is planning a management buyout of the company's operations in the UK.
Ministers have visited Tata Steel sites across the country and the pride and dedication of the highly-skilled men and women working there is obvious to see. We have already delivered on energy compensation, on tackling unfair trading practices and on procurement of British steel, and we will keep on going further to support this vital industry.
The government had previously said "nationalisation not the answer" to steel crisis, though did not rule it out.
The move has been widely praised by trade groups and unions.
Terry Scuoler, chief executive of EEF, the manufacturers’ organisation, said:
“This is a welcome and extremely positive statement of intent. This should put in place the building blocks which should encourage potential investors to come forward to co-invest with government to ensure a viable future for the steel sector in South Wales and, in the wider UK.
Gareth Stace, director of UK Steel, added:
We have been calling for government to step up to the mark and provide this type of financial commitment and backing. We are not yet out of the woods however. Further action is still needed on energy costs and business rates whilst at EU level, we still need to see tougher action on the dumping of cheap imports.
Roy Rickhuss, general secretary of Community, the steelworkers' union said:
We have been clear from the start that this steel crisis should not become a political football and we welcome the fact that the UK and Welsh Governments have taken this joint approach to such an important issue for our country.
However some groups have been critical of the decision, claiming it will lead to increased government support and drive up costs to the tax payer.
Mark Littlewood, director general at the Institute of Economic Affairs said:
Unfortunately the problems of UK steel are structural, not cyclical. With energy, labour and other production costs much higher than those in say China or Germany, it is very unlikely the UK steel industry is viable over the long term without a dramatic change in tax and energy policies. It is severely misguided of the government to gamble with taxpayer’s money in the hope that the industry will be revived against all odds.
Ben Southwood, head of research at libertarian think tan the Adam Smith Institute said:
If no buyer has approached at the market price, this means that the people who know the steel industry best have judged that Britain's steel sector is not viable in the long run. Sweetening the deal with government guarantees could mean permanently propping up an unproductive industry when the world is moving away from the sort of blast furnace steel production that Port Talbot has.