Deducting statutory redundancy pay from an aid package for workers at Redcar's SSI plant is "totally unacceptable" the town's MP has said.
The government pledged up to £80m to help the 1,700 who lost their jobs when owners SSI went into liquidation.
Anna Turley said it should not be used for redundancy settlements, which were an "entitlement".
However, the government said most of it would go towards supporting training, small businesses and the local economy.
Labour MP Ms Turley said that between £20m and £30m would be used for redundancy payments, and she would be writing to the prime minister demanding that the workers received "the entirely of that £80m to spend here in Redcar",
She said: "Statutory redundancy is people's entitlement, so the idea that they've given us this package of money to help re-skilling, and then suddenly that's actually coming out of a government sweetener is just not acceptable."
The Department for Business, Innovation and Skills, said in a statement: "Ministers were clear on the components of the package when they first briefed the local taskforce, which includes Anna Turley MP.
"There is some flexibility to meet statutory redundancy payments from the package, but the majority of the fund will go towards supporting training, small businesses and the local economy."