Select Committee on Public Accounts Minutes of Evidence


Examination of Witnesses (Questions 60-79)

DEPARTMENT OF TRADE AND INDUSTRY AND ADVANTAGE WEST MIDLANDS

20 MARCH 2006

  Q60  Mr Bacon: Yes; indeed. The consequence of the Government's decision was that; I accept that. As a simple financial hack I am still not clear what this £6.5 million was actually achieving other than making people feel better for a few days before they got their redundancy notice seven days later.

  Ms Bell: I explained to you how we felt that it changed fundamentally the opportunities for SAIC. What it also did was potentially open opportunities for other bidders who might have come forward, the niche parts of the business. We needed to consider those opportunities against the known cost of the regeneration package which, as the NAO Report observes, was likely to be of the order of £150 million. If we were able to preserve only, let us say 1,000 jobs in the Powertrain business or in a specialist niche sports car business, we would still have saved the taxpayer money. As the Accounting Officer with responsibility for the net impact of decisions on public expenditure, it was appropriate for me to bring all those considerations into my mind in making that decision.

  Sir Brian Bender: I wanted to add something, if I may, because it seems to me relevant that the administrators welcomed the loan.

  Q61  Mr Bacon: They would, would they not?

  Sir Brian Bender: No. Let me read the quote "We are pleased to have secured this funding which has given us vital breathing space to evaluate the interests of all parties". In another one "There is a possibility this creates an opportunity to resolve some of the concerns around the previous deal". So their professional judgment was that this was a welcome development which enabled them to have this breathing space.

  Q62  Mr Bacon: If you throw several million pounds of cash at anybody, they would normally comment that it is welcome; certainly I would. By the way, if the DTI wishes to give me a lot of money, I will not deny that I would like it. May I just ask one more question? This £40 million cash taken out by the directors was only until 31 December 2003. Are you aware Sir Brian, or are you aware Ms Bell, or is anyone else aware of further monies taken out by the directors since that date and if so, how much?

  Sir Brian Bender: The answer is that we are not aware. The more recent reports have not been filed and Companies House have sent a chaser and begun proceedings.

  Q63  Mr Bacon: But it is entirely possible that there is a larger sum at stake than £40 million, possibly considerably larger and we do not know that yet.

  Sir Brian Bender: We do not know.

  Q64  Mr Bacon: As Donald Rumsfeld might have said, "We don't know what we don't know". Presumably the company investigation now ongoing is looking into these matters, is it?

  Sir Brian Bender: The investigation will look into whatever the inspectors wish to under the Act. In parallel there are proceedings beginning against the company in relation to their latest accounts not being filed on time. There are two separate processes.

  Q65  Mr Bacon: When will the company investigation conclude or do you have any information?

  Sir Brian Bender: As I said to Mr Khan, we do not know that. It will take the time it takes. When it was set up, Alan Johnson asked them to do it as rapidly as they can. I would hate to be tied to a timescale that was out of my control, but I would hope that it would be in the course of calendar 2006.

  Q66  Mr Mitchell: I am sitting here thinking this could never happen in France, could it? They seem much better there at intensive care, whereas we seem much better at burial grants when it comes to co-operation with industry. Here you have Rover, which is a self-enriching, self-boosting organisation, negotiating with Albatross, which is a department intent on covering its own backside, which is passive, which is reactive to events, which does not seem to have any hard and fast plan of how to deal with things. The Report says in paragraph 8-i "The Department knew in 2000 that the Company was vulnerable in the longer term without a strategic partner". It also knew from comments in the motoring press that it was too small, that it had no new models, that its prospects were not all that good. Why was there no attempt to get down between the Department and the company and just talk turkey about what the real prospects were for this?

  Sir Brian Bender: Before I answer your last question, may I just comment for one moment on your earlier point about the French. A comparison of French unemployment rates and British unemployment rates would suggest that they are not quite as good at backing winners as some people might think whereas we stand back a little and actually allow the market to operate. I would sooner have British unemployment rates, than French unemployment rates.

  Q67  Mr Mitchell: I would sooner have departments that know something about industry and know something about the dynamics of the industrial situation and the prospects for a company in this kind of situation.

  Sir Brian Bender: Coming then to your direct question, this was a private company. The extent to which the Department can dictate to it how it should operate is fanciful. So what the Department actually did was try to have discussions with the company. It did help it on some joint ventures as I described earlier both in Poland that failed and in relation to China Brilliance that failed. At the end of the day all the Department can do in that situation is offer its services and engage, as it tried to do, but it cannot solve the company's problems.

  Q68  Mr Mitchell: You were serving as a grave digger. What is wanted is some element of co-operation. Nobody is suggesting you should dictate anything to it, but somebody is suggesting that there is a degree of co-operation there which could have helped the company had the Department been clear at the start what it was about.

  Sir Brian Bender: I would assert that the Department was clear that it was ready to offer its support as and when the company might want it, and it did indeed offer it in relation to Poland, in relation to China Brilliance, but it requires the company actually to ask for what it wants, rather that the Government just saying they will do this. Indeed, in relation to the Chinese and SAIC, the Department offered support and the company did not want it in the summer of 2004. It was only in the autumn that the company said they wished to have the support.

  Q69  Mr Mitchell: And later the Department rushed in, but we shall come to that in a minute. What the Report says is "... the Department reported that the Company was reluctant to share detailed information". That is not what the company says. They say they were ready to share the information and they wanted to get on with it. Who is right in this matter?

  Sir Brian Bender: I looked at this myself on the files. We sought to have regular meetings where we could actually discuss business plans and the company was not as outward looking as most other companies that we deal with, including in this sector. Most companies that we deal with are readier to share their plans and discuss options. This company was not. That was our experience. Again, one of my colleagues who was involved at the time can elaborate more if you wish.

  Q70  Mr Mitchell: The Report also says that the Department eventually established "... an accurate picture of MG Rover's finances based on information largely in the public domain". You could have done that from the start.

  Mr Russell: Two reports were done, one in April 2004 and one in November/December 2004. Yes, you are right, largely publicly available information was pulled together at that time simply because the Department was more concerned that we did get an accurate picture of what was available. Yes, information was pulled together from publicly available sources simply because the company would not let us have any sensitive information or inside information.

  Q71  Mr Mitchell: From 2000 the company was making a series of efforts to establish an alliance with an overseas based partner. Sir Brian has just said you tried to help them there, but the company says they received only limited support from the Department and from UK Trade and Investment. In determining the amount of effort it should devote to MG Rover, the Department reported that it sought to balance the company's vulnerability and the concentration of employment in the West Midlands against what it considered to be the reluctance of the directors to engage. Here you are doing this philosophic balancing act while the company is venturing out into a hard cold world in which its prospects were fairly hard. Why did you not co-operate more strenuously and more generously?

  Sir Brian Bender: I should assert the Department did seek to co-operate and other companies in the automotive sector find the degree of cooperation and engagement with the Department satisfactory. It takes two to co-operate with one another.

  Q72  Mr Mitchell: Yes, but what seems to have triggered your activity and co-operation is the sudden alarm at the end of 2003, when the directors start feathering their own nests. Then there is a public clamour, ministers are presumably anxious, word comes down to you to do something and suddenly you start doing things. Why was it left until that actually put the fear of God into you?

  Sir Brian Bender: I do not believe it was left until then. I have referred a couple of times in this hearing so far to the support that was given to the company in relation to Poland, in relation to China Brilliance. When there were opportunities, the Department did support, but it takes the company to come along and say they are interested in this partner. The Government cannot dictate to the companies where they should be operating or how.

  Q73  Mr Mitchell: So if you see them feathering their own nests and that kind of factor, there is nothing you can do. You have no powers to intervene with a company you are helping and trying to support.

  Sir Brian Bender: If there is evidence that people are feathering their own nests, we can set up investigations. That is now what the Secretary of State has done in relation to the Companies Act inquiry.

  Mr Mitchell: A bit late, is it not?

  Chairman: It is difficult to record a shrug in the transcript, Sir Brian.

  Q74  Mr Mitchell: Very Gallic, if you do not mind me saying so. Let us turn to help with the Chinese. It seems to me that when they began negotiations with the Chinese, which they could not really carry through without some degree of financial support from the Government, either in terms of keeping going or help with the pension plan or whatever, you effectively sent them into a conference chamber, naked.

  Sir Brian Bender: No, Mr Mitchell we did not. When we first heard of the discussions taking place with the Chinese, which was in the first part of 2004, the Department offered support and the company said it did not wish to have it. It was later, in the autumn of that year, when we were repeating those offers, that the company did then turn around and say they wanted support and at that point the then Secretary of State and the Prime Minister and other ministers engaged with the Chinese Government.

  Q75  Mr Mitchell: Following initial rebuttal in the five months to November 2004, the Department was not asked and did not seek to play any part in assisting the company in negotiations. Why was that? You knew what was going on, you knew they would need help. You could have assessed the prospects. Why did you just stand by and do nothing?

  Mr Alty: As Sir Brian said, the company initially told us actually that it would be counter-productive for us to take a high profile position.

  Q76  Mr Mitchell: Why? Because you were nervous?

  Mr Alty: Because they were concerned for their own commercial position. They did not want the Government charging in and giving the impression that they were in a weak negotiating position. The other point they made to us was that their Chinese counterparts, SAIC, had excellent contacts with the Chinese Government and that if anyone was capable of getting the deal through the Chinese Government, it was SAIC. So that is why we took the initial position that we did and in the autumn there were further discussions with the company when they did ask for help.

  Q77  Mr Mitchell: But you are negotiating with a Marxist government here. It believes in the Labour theory of value and all sorts of stuff like that. Certainly it is the kind of regime which would expect a government to back a national company. They expect the Government to do something; they expect the Government to help and you just sat back and did nothing.

  Sir Brian Bender: No, Mr Mitchell.

  Q78  Mr Mitchell: Indeed it was not until later on, early 2005, that you were still collecting detailed intelligence on the key stakeholders in China and the Chinese Government's approval process. Why did you not know all this beforehand?

  Mr Alty: We did know the basics of the approval process.

  Q79  Mr Mitchell: You knew the kind of regime you were negotiating with and you knew what they might expect from the British Government.

  Mr Alty: The point about early 2005 was that at that stage, the timing had become critical because we knew the company was running out of cash. Therefore what was critical to establish was how long the Chinese Government might take to approve the process: it was not that we did not know what the approval process was.


 
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