THE Business Secretary has said Liverpool must obey European state funding rules in a row with Southampton over the repayment of taxpayer handouts for its £21m Mersey cruise terminal.

Southampton MPs and Euro MPs have accused Liverpool of “illegally” launching its first “turnaround” cruise at its Pier Head terminal before EU chiefs have given the go ahead.

Mr Cable refused to directly criticise Liverpool for jumping the gun before the European Commission has ruled on a £8.6m grant used to build it, but he said fair competition rules must be adhered to.

Shipping minister Mike Penning last month announced he would lift a calling cruise only restriction on the City of Liverpool Terminal if the council agrees to pay back £8.8m of UK funding. He added the deal was subject to EU state aid clearance.

Southampton and other UK ports that have built their cruise operations on private funding have called for all public handouts to be repaid.

Speaking on a visit to Southampton to open a new £7.5m car terminal at the port, Mr Cable said it had become a “legal matter” for the EU to adjudicate but said “Liverpool will have to respond to the law”.

He said: “We have to have discipline over state aids, whether its ports or manufacturing or anything else, otherwise the whole of Europe just becomes a free for all.

“I'm not making any judgements as to whether Liverpool is acting rightly or wrongly, the matter is for the European Commission to decide and act.”

But Mr Cable added: “The principle of having state aid rules is right. There has to be discipline and there has to be a level playing field. But how this particular dispute is handled I think we will just have to wait and see how the legal process unfolds. The Government is trying to observe the proper process and fair outcome will result.”

Liverpool City Council has not offered to pay back any EU funding claiming it was not a “condition upon the terminal solely being used as a call-in facility”.

Ocean Countess became the first turnaround cruise to be launched from the Mersey in 40 years at the end of last month.

However, she suffered an engine breakdown hours after her send-off, due to an electrical fault which left her without power for three hours.

The ship had to be diverted for checks to be carried out.