Select Committee on Public Accounts Minutes of Evidence


Examination of Witnesses (Questions 80-99)

DEPARTMENT OF TRADE AND INDUSTRY AND ADVANTAGE WEST MIDLANDS

20 MARCH 2006

  Q80  Mr Mitchell: Why, suddenly in January 2005, is a strenuous effort made as though you were going through a nervous paroxysm, realising you had delayed so long and something had to be done and then you start throwing activity and money at the problem.

  Mr Alty: As we said, there were really three stages: there was the initial contact with the SAIC, where the company said they did not want help; there was sustained lobbying before Christmas, when both the Secretary of State and the Prime Minister wrote; so there was sustained lobbying before the end of 2004 at a high political level; but the critical thing that became apparent when we reviewed our contingency plans in the light of the company's latest accounts was that the company was going to run out of money in the spring of 2005, which is what actually happened. It then became critical to understand how long the Chinese approval process would take. Up until that point, the company had been confident that they would have approval for this deal before any financial problems occurred.

  Q81  Mr Mitchell: Just one final question. It is a pretty depressing fiasco that this was allowed to happen. There is a Department there which is supposed to be about trade and industry and a company there which is supposed to be about supporting the last surviving British major car manufacturer and the failure of intentions on both sides which led to the collapse of the company and the loss of all these jobs. It is a discreditable story, but the National Audit Office recommends that you should set down the principles in future on which you will act, on which you will intervene and which you will operate in this kind of situation. Have you done that?

  Sir Brian Bender: We have some general principles, which are in the Department's Manufacturing Strategy published two or three years ago, which the National Audit Office Report refers to.

  Q82  Mr Mitchell: Before the Audit Office's Report.

  Sir Brian Bender: Before then. I am not convinced yet, though I am ready to look at the recommendation, of the value of actually setting down more detail in hypothetical situations. May I just come back on your point about the demise of British motor manufacturing? Yes, Rover was the last of the major British-owned companies, but there is some seriously impressive data about automobile manufacturing in this country, with record output from a number of plants last year in Britain and also with three British plants in the top most productive ones in the European Union. The British motoring industry is doing extremely well.

  Mr Mitchell: I do not know about "doing well" in a situation where it is foreign owned and where any cuts and sacrifices in the contraction of production which is going to come will probably fall more on this country than on the domestic country that the producer is in. I hand over.

  Q83  Mr Williams: Way back in history when I was in the Department of Industry, as it used to be, one of my functions was to see what could be salvaged from bankruptcy situations. Looking at the paragraphs 2.6 to 2.11, I find the conduct of the company absolutely grotesque. Would you say, in your experience, that a firm like BMW is likely to write off a business which is probably going to be able to be made viable?

  Sir Brian Bender: BMW did of course deal with the Mini and the Land Rover which are continuing profitable operations. Plainly a view was taken by PVH in 2000 that they could make a go of this company and they did not. However, it was not impossible: SAIC, as I said earlier in reply to a previous question, did have successful joint ventures with other motor manufacturers in Europe.

  Q84  Mr Williams: The Report makes it clear that most of automotive industry is only too happy to have support from the Department; if anything, they would probably be complaining if support were not available. The conduct of these directors seems to be fundamentally perverse. Other than getting their £40 million out of it, which was very astute, their conduct over the four to five years was inexplicable, would you agree, as far as possible help from your Department was concerned?

  Sir Brian Bender: I should use a different word. The Department found it puzzling. As I was trying to say earlier to Mr Mitchell, it takes two to have a relationship and there was a limit to what the Department could do in those circumstances. I guess whether it was inexplicable or not is something that the Companies Act investigation will uncover.

  Q85  Mr Williams: It was puzzling to the extent of being almost suicidal, was it not? If you look at paragraph 2.6, we see that in the first four years the Department found the directors distant and it talks of reluctance on the part of the company. This was a time when they were trying to build something out of what was clearly a rescue situation and yet they were reluctant even to cooperate with you at that stage.

  Sir Brian Bender: Mr Alty may want to supplement with his first-hand experience. They were certainly reluctant to share with us their business plans looking forward and that was difficult.

  Q86  Mr Williams: It says in paragraph 2.8 that the Department sought information on business strategy and progress and in response the company chose not to provide detailed business plans. To rebuff assistance from the Department, even if at the end of the day you did choose not to take what was being offered, seems to be rather stupid.

  Mr Alty: Just to add to what Sir Brian has said and put it in a slightly wider context, in our relations with businesses, it is certainly the case that not all businesses want to have the same degree of relationship with the Department. There are businesses who, quite rightly, think that they have the commercial nous to take forward their business; they do not particularly need the Department's help and they may feel that they have perfectly good avenues of communication and good commercial strategies. Although we have described the company in the way that is set out in the Report, I should not say it was unique to that company; it just so happens the Report is about that company. I just put it in that wider context.

  Q87  Mr Williams: I am not normally the defender of groups that find themselves before this Committee, so enjoy this exceptional occasion. Reading paragraph 2.10, to find that for four years the Department eventually decided there was not much point in trying to seek senior level meetings and that it was not worth putting extra time into seeking senior level meeting, is difficult for me as an outsider to understand. It must have been very frustrating for the Department.

  Mr Alty: Again generalising, it can be frustrating. There are companies who see merit in a close relationship with the Department and there are others who do not and in our judgment the management or directors of MG Rover fell into the latter category.

  Sir Brian Bender: It was that lack of contact which led us to do the review which took place in 2004 based on public information that turned out to predict the problems that indeed lay ahead.

  Q88  Mr Williams: If it was clear from public information, I should have thought it would have been clearer from all the inside information they must have had.

  Sir Brian Bender: Yes.

  Q89  Mr Williams: It raises questions about their judgment managerially. In fact, as it says, in 2004 the Department renewed its efforts to get closer links. Frankly, I am not normally here as the defender of people who are being reported on, but it does seem to me that there was not much more that a government department could do to help the company. They were willing to help, the company did not want their help, the company paid the cost of not getting any help earlier, not even wanting help from the embassy and from a department in relation to China and the only people who come out of it smiling are the directors with £40 million. Would that be a fair summation of the situation?

  Sir Brian Bender: Let us see what the Companies Act investigation shows.

  Q90  Greg Clark: First of all, may I say at the outset that during the 1990s I worked very closely with Catherine Bell and John Alty when I was a special adviser at the DTI. I have a very high regard for both of them. Turning to one of the Chairman's questions, paragraph 2.34, page 38, deals with the consideration the Department made of relaxing some of its loan criteria. Ms Bell, I know that the decision ultimately was not to relax it, but why was it considered?

  Ms Bell: There was concern that the pressures were becoming ever more intense in terms of the cash flow difficulties on the MGR side and also seeking to understand precisely what the obstacles were on the SAIC side.

  Q91  Greg Clark: But is that not exactly why you have these criteria, these loan criteria, precisely to allow you to keep a cool head when the pressures do become intense? To consider revising the criteria then seems paradoxical.

  Ms Bell: The conditions, as you say, were designed to put some fixed points in the ground in terms of the risks which were there for taxpayers' funds. At the same time, it was very important that we understood precisely what the sticking points were in the negotiations.

  Q92  Greg Clark: I am not sure how revising the criteria allows you to understand the sticking points. Why is it that considering relaxing some of the criteria allows you to consider the obstacles? I do not understand the connection with it.

  Ms Bell: We had put a number of different requirements into the conditions for the bridging loan. What we wanted to do, what the ministers wanted to do, was to explore whether there was any flexibility at all to see a way forward. To go back to the very point I made at the beginning, this was a rock and a hard place in terms of progress on these negotiations with a very desirable joint partner against all the risks on the other side in terms of the jobs at issue.

  Q93  Greg Clark: I take it that it was not your advice then that these conditions should be relaxed?

  Ms Bell: It was for ministers to decide how they wanted to take—

  Q94  Greg Clark: Of course, but you advised and I infer from what you said, that it was not your advice. Is that a correct inference?

  Ms Bell: Ministers were very, very keen to see whether there was any prospect whatsoever of making this deal happen.

  Q95  Greg Clark: So the pressure to relax these criteria that you are talking about came from ministers rather than from officials in the Department?

  Ms Bell: Naturally everybody was concerned to see whether there was a way forward. Against that, it was my responsibility to constantly comment on what the risks were.

  Q96  Greg Clark: Sure, but it says "... the Department considered relaxing some of its loan criteria". Was it your advice as the accounting officer at the Department that the criteria should be relaxed?

  Ms Bell: No it was not my advice as the accounting officer that the criteria should be relaxed. However, Mr Russell was the person primarily in charge of the detail of the negotiations, if you wish to ask him more on the detail.

  Q97  Greg Clark: But your view, as the Accounting Officer, was that the criteria should not have been relaxed?

  Ms Bell: My view as the Accounting Officer was that there was a very significant sum at stake but there were many variables in this including our assessment of the assets available in MGR against which the loan could be partially secured, what the intention of SAIC was in relation to staged payments if the joint venture was completed. There were several variables here. We were constantly seeking to establish whether there was any way through.

  Q98  Greg Clark: I understand that, but I surmise from what you have said that, in terms of relaxing the loan criteria, the pressure to do that came from ministers rather than officials.

  Ms Bell: It is certainly true to say that relaxing the loan criteria increased the risk and I have already given you my view about how, as the Accounting Officer, I saw the risks.

  Q99  Greg Clark: Is it fair to say that the pressure came from ministers rather than officials?

  Ms Bell: The desire to see this to a conclusion obviously came very, very strongly from ministers in a very complex situation.

  Sir Brian Bender: May I make the one point I was going to make earlier? If the Department had not been looking at different scenarios and different developments, which in this case was the relaxation of the terms of the loan, we should have been open to criticism for not actually looking at different scenarios and contingency planning.


 
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