Examination of Witnesses (Questions 120-139)
DEPARTMENT OF
TRADE AND
INDUSTRY AND
ADVANTAGE WEST
MIDLANDS
20 MARCH 2006
Q120 Kitty Ussher: I want to focus
in on the decision which had to be taken to provide the administrators
with the £6.5 million loan on Sunday 10 April and I want
to explore a couple of counter-factual cases. You said Ms Bell
that if the company had gone into administration and then, say,
parts of the assets were sold, that would save the taxpayer considerable
amounts of money in terms of not having to provide redundancy
support and so on. Are you able to quantify any numbers that you
are aware of, albeit on the back of the envelope and what type
of possibilities that might have opened in terms of the overall
value for money of that decision?
Ms Bell: Our working rule of thumb
at that time, with the information we had about the age of the
workforce and length of service, which was material, was of the
order of a minimum of £10,000 per head, maybe up to £15,000
for those who had more years of service with the company and hence
would be entitled to more advantageous redundancy terms. Looking
at the total equation of net public expenditure, which it was
my responsibility to do, that was the figure that we had in our
minds in terms of looking at the option for SAIC on the one hand
and also looking at whether there would be any bidders for niche
parts of the business. Powertrain employed about 1,250 people,
as is observed in the NAO Report. If there had been a bid for
a sports car development out of the business, it could have employed
500 to 1,000 people and we could not exactly quantify that. That
was part of the equation that needed to be weighed in terms of
what it was appropriate to do in these very difficult circumstances.
Q121 Kitty Ussher: So it is quite
possible in those two examples that you quoted, that the decision
that you made would lead to the taxpayer in effect saving £10,
£15 possibly £20 million. Is that right?
Ms Bell: Yes, that is correct.
Q122 Kitty Ussher: The other counter-factual
I wanted to explore was that, from reading the Report, one of
the things that seems to have happened as a result of giving that
loan is that people were able to be made redundant in a more sort
of structured, less chaotic way and they would have been on-site
to discuss what type of training they needed, if they were to
become redundant in a week's time. This may be a question for
Mr Edwards. Presumably it is cheaper to discuss each individual's
options with them if they are actually on-site in the Longbridge
plant rather than if they go home not knowing what their future
is. Were there savings to be made in terms of the retraining package
by the fact that you actually had them on-site for a week or so?
Mr Edwards: Certainly the time
that we had available to us enabled us to plan better and to make
sure, for example, that the Jobcentre Plus office just north of
the plant was able to deal with a potential very large-scale redundancy
and the Learning and Skills Council and ourselves were able to
begin to prepare for what might happen if the loan were not to
be successful and the company were not to be taken over or to
be absorbed by SAIC. Yes, it is not unfair to say that we were
able to plan a little better, but we were well prepared in any
event for what might happen.
Q123 Kitty Ussher: Would Jobcentre
Plus have spent less money as a result of having a week to plan,
than they would have if everyone had been made redundant overnight?
Mr Edwards: I cannot really comment
on that to be absolutely honest. Jobcentre Plus were well prepared.
Ms Bell: May I just comment from
the Accounting Officer perspective? It is certainly the case that
we also weighed in the balance the advantage of bringing together
the administrators, the MGR HR people and the government agencies
on site in a more orderly way so that people could be contacted
and given specific appointment times, partly because it would
be a better process, but the point of that was to get those many
workers who had only ever known employment at MGR focused on the
reality , if that was what proved to be necessary, of needing
to find a new job and to retrain. All the evidence, including
the resonance from the MORI evidence of the work done by the NAO,
shows that it was quite difficult for many of those workers to
accept that the world had changed in that way.
Q124 Kitty Ussher: The fact that
they and all their colleagues were turning up to what seems to
have been a sort of fair, where all the different agencies were
explaining what the choices were, that this was a reality, presumably
meant that where we are now there are more people in work than
there would otherwise have been, do you think?
Ms Bell: Hard to prove but common
sense tells you that is probably so.
Q125 Kitty Ussher: And there is a
financial price tag or saving attached to that.
Ms Bell: The transition factor
might have been strongly supported, even accelerated by that approach
in that way rather than mass redundancies on the Monday morning.
That was the view we took and it was a significant part of our
consideration in making the decision that there was a good argument
for breathing space on Sunday 10 April.
Q126 Kitty Ussher: Do you feel that
either of those counter-factuals has been fully taken into account
by the NAO Report, which is an excellent Report?
Ms Bell: I note that there is
no comment on them.
Q127 Kitty Ussher: You have talked
about there being various possibilities of bits of the business
or possibly even the Chinese again coming back into play over
the weekend. Can you describe the atmosphere of that weekend?
What snippets of information did you have when you were trying
to make this decision about what possible other purchasers there
were of all or parts of the business? Was it seen as a real possibility?
Ms Bell: It was certainly the
case that there had been a number of approaches, both to the Department
and to the administrators, by the afternoon of Sunday 10 April.
There was also very extensive comment in the press that a range
of bidders might come forward including Jon Moulton who had led
the Alchemy bid in 2000. We needed to make the best evaluation
we could of what those options might amount to and the net cost
to the taxpayer in a very, very tight period of time. Information
was extremely uncertain in terms of what would happen but we had
to exercise our best judgment in terms of what we knew of the
SAIC scenario—in particular, the specific concerns that
they had had about the sticking points on the joint venture negotiations,
how that was changed by the administration, where some of those
concerns could be removed—and we also had to bear in mind,
in terms of the scenario if there was no bid, how easy it would
be to get the workers refocused on re-employment and retraining.
All those considerations under the relevant legislation had to
be in our mind when taking a view.
Q128 Kitty Ussher: Thank you very
much. I have one further question following on from that point.
What was the legal basis for the loan to the administrators? What
kind of aid was it?
Ms Bell: It was aid under the
Industrial Development Act and the footing for the aid was focused
in part on the fact that this was in an assisted area. That was
a material part of the consideration in looking at the vires.
Q129 Kitty Ussher: So jobs were an
explicit and legal consideration in aid of this type?
Ms Bell: Yes, they were; both
the preservation of jobs where possible and, where that was not
possible, the orderly transition into new employment where that
could be created.
Q130 Kitty Ussher: At the bottom
of page five where the NAO says "We therefore doubt whether
the Department obtained sufficiently good value for the loan"
it was not simply good value on financial terms that was the legal
basis for giving that loan, is that correct? Yes or no.
Ms Bell: That is indeed correct
in the sense that we had to assess on the one hand the known risk
and cost to the taxpayer if all jobs went, £150 million minimum
in the total regeneration package which had already been determined
by ministers, against the risks, and of course there were risks,
in terms of whether bidders would come forward against the scenario
of the very changed proposition in the separation of assets and
liabilities in the way I have described.
Q131 Mr Curry: I am slightly intimidated
that some of my questions might turn out to be counter-factuals.
As a simple financial hack, I have not come across these before.
I shall try not to let them bother me. I am afraid I do not have
the slightest idea what a counter-factual is, unless it is fiction.
I want to continue Kitty's line of questioning because you made
it clear, Ms Bell, that this last minute loan was to keep up the
possibility of a fire sale. The duck was dead, but people could
make use of one or two of the feathers, the feet could go into
duck soup or something could happen to bits and pieces. I do not
know whether you are a betting lady, but what odds do you think
there were that that might happen? If you were having a private
bet in the office, what was your bet that something would turn
up?
Ms Bell: If I might just comment
on your first statement, what I actually indicated as the range
of options was on the one hand a bid from SAIC looking to capture
assets out of the administration, which could have taken pretty
much the whole of the business or a significant part of it, or,
on the other hand, a niche bidder. It was not just a case of a
niche bidder.
Q132 Mr Curry: Let us go back to
the SAIC counter-factual. Even though you had sent your delegation
to China and the delegation had been told that the Chinese had
shut up shop, they had disbanded their team, you still thought
there was a chance that SAIC might come in for a company which
they could presumably pick up cheaply, having gone into liquidation.
What reason did you have to think, having gone through all this
rigmarole and having sent your delegation, that they might still
come into the whole shooting match?
Ms Bell: The principal reason,
as I stated, was that their very sticking point was the liabilities.
The liabilities potentially ran to hundreds of millions of pounds,
particularly the pension fund was a concern, redundancies, warranty
payments. Rationally, from their point of view, if that was the
sticking point at the end of the negotiations on the joint venture,
they potentially had the very thing they wanted in front of them.
I therefore thought there was a fair prospect that they might
do exactly that and come in and make a bid to the administrators.
Q133 Mr Curry: Did you feel that
there was a realistic chance that prior to that they were really
interested in buying the company, before it had gone into liquidation,
or was that all sort of play acting?
Ms Bell: As we have stated in
relation to a previous question, they had paid £67 million
for the intellectual property in relation to the Rover 25 and
the Rover 75. That to me seemed to be a very serious indication
of intent. They had also conducted negotiations over a sustained
period and brought sizeable teams to the UK to look at the assets
at Longbridge.
Sir Brian Bender: Would it help
to hear from Mr Russell who was involved in direct discussions
with the Chinese?
Q134 Mr Curry: It might well, because
my next question was going to be: at what levels were these talks
held? When the team went to China, who did the team talk to and
what was the highest level at which talks took place? What was
the most senior layer of interlocutors engaged in this?
Mr Russell: Between Rover and
SAIC?
Q135 Mr Curry: No, between the DTI
and China? You were lending a helpful hand at this stage, even
though the company did not seem to be terribly keen on you doing
it.
Mr Russell: The most senior person
was the President of SAIC; that was with whom we met. There was
someone more senior, the Chairman, but he was out of the country.
We were completely convinced that we were dealing with the senior
levels of SAIC.
Q136 Mr Curry: Did the Chinese not
think it slightly curious that senior officials from a government
department should be trying to do what the company was supposed
to be doing?
Mr Russell: Yes, I think they
did; I think exactly that. They in fact made the comment that
they were puzzled as to why the British Government would be interested
in the fortunes of a private company.
Q137 Mr Curry: A curiosity which
I think quite a lot of people at home shared as a matter of fact.
Let me go back to Ms Bell. SAIC has bowed out, even of picking
up the pieces. You did a lot of scurrying around trying to find
a way of saving this company. How many people had you talked to
who might have been in for bits of the company? What was your
realistic hope of somebody coming for the bits? Had somebody come
in, had SAIC come in again, presumably you would have had to extend
that loan because that negotiation would not have been completed
in a week. If people had come in for the bits, presumably those
negotiations would have taken more than a week. You said you extended
it for a week; you agreed to it for a week only, purely for a
week. Would there have been circumstances in which you might have
been persuaded that it should be carried on? Who did you think
realistically might be in for bits of the company?
Ms Bell: First of all in relation
to SAIC, SAIC had conducted very extensive due diligence by virtue
of the joint venture negotiation, so certainly they were not starting
at square one. They knew a very great deal about the company;
arguably they knew enough to call the position in terms of whether
they would look at the position in administration, the assets
in administration. That is one scenario. A different scenario
is that a niche bidder comes in. Then there would have been different
issues, if they had been new to the business. We felt that the
Powertrain business in particular, which the administrators themselves
were keen to get running again, was one serious area of interest.
It had a contract to supply Land Rover as well as MGR. As we all
know from the history of Rover, there had also been persistent
interest in developing a niche sports car business out of the
MGR activities and the MGR marque. Those seemed to me the most
likely areas.
Q138 Mr Curry: Did anybody talk to
them? Did anybody pick up a phone? Did a minister pick up a phone
and ask whether they were interested in a very fine sports car
business which was going begging? What I am asking is what you
based that assessment on that somebody might be interested other
than reading the business sections of the papers?
Ms Bell: There had already been
some approaches direct to the Department and some approaches also
to the administrators by Sunday 10 April. It is true to say, however,
that the administrators had only been in charge of the business
for 48 hours at that stage.
Q139 Mr Curry: That being the case,
had somebody come in for a niche part of the business, it would
have been difficult to contemplate that deal having been concluded
in a week, would it not, because the administrators were presumably
getting to grips with the business and they would have had to
go through the books. There could have been circumstances where
the logic which led you to approve a loan for one week would have
been equally persuasive for two, three or four weeks.
Ms Bell: I think not. It was quite
clear that SAIC were likely to crystallise their position very
quickly because they did not need to go through more due diligence
than they did.
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