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British taxpayer hit by MG Rover collapse

2006-03-14 08:52

Matthew Jones

A report by the National Audit Office on Friday into MG Rover and its demise in April 2005 was also critical that 6.5 million pounds of public money had been injected into the company in its final days in the misguided view it could be sold as a going concern.

"The benefits derived did not justify the amount of the loan," the report's author Peter Gray said of the money handed over to keep MG Rover solvent for a few days.

Of the 6.5 million pounds, 1.2 million was swallowed up by the administrators in just five days against 3 million used to pay wages of the near 6,000 workers who subsequently lost their jobs. Government figures released earlier this week showed 40 percent of former workers remain unemployed.

When the loan was announced it triggered accusations that political pressure had been brought to bear in order to keep MG Rover afloat long enough for the May 5 general election.

MG Rover's West Midlands Longbridge plant was located close to three constituencies in which Prime Minister Tony Blair's Labour party had only slim majorities.

Reviewing the events of last year, Gray said it was unlikely MG Rover could have been sold after April 10 given that Chinese auto group Shanghai Automotive Industry Corp (SAIC) had pulled out of a proposed tie-up on April 7.

Money written off

"Given the messages coming from SAIC's advisers, the prospect of achieving a going concern sale was remote. We therefore doubt whether the Department (of Trade and Industry) obtained sufficiently good value for the loan, of which 5.2 million pounds will probably not be repaid."

The chairman of the all party select committee on public accounts agreed.

"The motive of giving the administrators a chance, however small, to sell the business was understandable - but the blunt truth is that there was no real prospect of selling a going concern and taxpayers did not get value for their money," said Edward Leigh in a statement.

The 270 million pound figure, which is expected to grow, relates to taxpayer cash spent since 2000 when the Phoenix consortium bought MG Rover from German car giant BMW for a symbolic 10 pounds.

It includes 90 million to lessen the impact of BMW's sale of MG Rover in 200, 146 million used to help supplier companies after the collapse as well as redundancy payments and retraining costs for workers and unrecoverable tax liabilities of about 18 million pounds.

Leigh said the NAO report showed the DTI could have planned better for the failure, although he noted it had been a difficult time for officials.

He said it was a "high-risk situation for the DTI" coming as it did in the "charged atmosphere of the general election period".

The DTI said it had sought the best outcome and defended the last minute injection of 6.5 million pounds.

"MG Rover's entry into administration on April 8, 2005 removed many of the liabilities that concerned SAIC and there was a prospect that they might have stepped back in," the department said in a statement.

The DTI said it was not informed until April 15 that SAIC was definitely not interested.

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