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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