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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