Government Response
The Government welcomes the Committee's Report on
its inquiry into the Government's decision not to proceed with
the loan to Sheffield Forgemasters for the purchase of a 15,000
tonne press to make large components for the civil nuclear industry.
Conclusions and Recommendations of the Committee
Set out below are the Government's responses to the
Committee's conclusions and recommendations, under headings adopted
by the Report. These are listed in the order in which they appear
in the Report.
AFFORDABILITY: THE ABSENCE OF AVAILABLE FUNDS
It is clear that the loan was subject to
the normal procedures within
the Department, and approved by the then Permanent Secretary and
HM Treasury. Therefore, we are convinced that former Ministers
signed off the loan in the full knowledge that it could be funded.
(Paragraph 16)
1. The Government notes the Committee's conclusion
which is a matter for the previous administration.
AFFORDABILITY: A COMPARATIVE CHOICE
The Secretary of State was working in the context
of in-year cuts demanded by HM Treasury and therefore tough decisions
had to be made. At short notice the Department had to deliver
significant savings and decide where to allocate its limited resources.
While we disagree with the process, we recognise that it was the
Department's responsibility to deliver these savings. (Paragraph
25)
Some DBIS projects requiring government funds
were reapproved even in the absence of any contractual commitment.
A choice could therefore
have been made by Ministers on where the axe would fall. We do
not believe that any substantial comparative cost-benefit analysis
was undertaken on those
non-contractually committed projects under review. Rather it appears
to be the case that the
Sheffield Forgemasters loan was identified as an easy cost saving.
While this is a legitimate
way to proceed, the Department
should have been more transparent in articulating this process
and not hidden behind the simple defence of affordability. Furthermore
we did not receive any detailed explanation of how the Sheffield
Forgemasters project was chosen ahead of the other non-contractually
committed projects sponsored by the Department. (Paragraph 26)
2. The Government welcomes the Committee's acknowledgement
that budget cuts were unavoidable and that the Department had
tough decisions to make. However, the Government does not accept
that the Sheffield Forgemasters loan was identified as an easy
cost saving. The project re-approval process was about making
the books balance for the current financial year. The Government
was not able to bear the cost of all the commitments made by the
previous Government. This meant that it had to take a very difficult
decision regarding the affordability of the loan. This decision
was not taken lightly, and was taken on grounds of affordability.
DILUTION OF EQUITY
It is clear that a level of equity in the company
would have been transferred out of the company as a condition
of the Government loan to Sheffield Forgemasters. It is also clear
that board Members were willing to agree to such a transfer. We
conclude that a dilution in equity did not represent an obstacle
to providing the loan. (Paragraph 31)
3. The Government notes that the Committee concurs
with the view expressed by the Secretary of State in his oral
evidence to the Committee.
LOOKING TO THE FUTURE
We welcome the fact that the Department has continued
to consider other avenues for funding for Sheffield Forgemasters
even if those discussions have not come to a successful conclusion.
The establishment of such a large press would have enabled the
United Kingdom to take a significant lead in this important industry.
For that reason we urge the Government to continue in its efforts
to secure funding for this project—whether by public or
private funds—so that an opportunity to take a lead in this
important industry is not lost. Therefore, we welcome the undertaking
given to us by the Secretary of State that he would "entertain"
a fresh loan application from Sheffield Forgemasters. Should the
company make a further application, we would expect the Secretary
of State to honour that undertaking. (Paragraph 40)
4. The Government has always made clear that the
withdrawal of the loan was no reflection on the company, its management,
its staff or on the project itself, and that the benefits of the
loan would probably have outweighed the costs, had it been affordable.
5. As the Secretary of State made clear in his oral
evidence to the Committee, Sheffield Forgemasters would be welcome
to apply for support under the Regional Growth Fund (RGF). The
RGF is a competitive fund, but any new bid from SFIL would be
considered on its merits against the objectives of the RGF (creating
sustainable private sector lead growth and employment in an area
which currently has a high dependency on the public sector) without
prejudice.
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