Humza Yousaf and his Cabinet face a choice on Tuesday over whether to concede to UK government demands over the deposit return scheme or scrap the project, risking the threat of huge compensation claims from businesses.

As predicted by Daily Business on Sunday, UK government ministers called the First Minister’s bluff and refused to budge on the exclusion of glass from the scheme.

Mr Yousaf had written to the Prime Minister urging him to revoke the glass order, but Michael Gove, Alister Jack and Thérèse Coffey have replied by confirming they will not grant an exemption to the terms of the Internal Market Act which aims to create a level playing field for trade across the UK.

The ministers said there was “nothing to prevent” Scotland launching its own scheme in March next year, without the inclusion of glass.

Speaking to reporters after he addressed the SCDI Forum at Gogarburn, Mr Yousaf insisted it would be “extremely difficult” to go ahead with DRS if glass was not included. He said this was because the scheme would not raise enough money to make it viable.

He said it would put Scottish businesses at a disadvantage but did not elaborate and he denied he had misrepresented the views of Tennent’s owner C&C which says it would prefer a UK-wide scheme.

Mr Yousaf admitted that Tuesday’s Cabinet meeting would have to “factor in” potential compensation claims if the scheme is scrapped.

“I will not go into legal arguments around compensation but all of these issues, including the considerable investments made, will have to be considered. If we don’t go ahead we have to weigh up potential liabilities.”