Press Notice No. 57 of Session 2005-06, dated 25 July 2006
FIFTY-SEVENTH REPORT: THE CLOSURE OF MG ROVER (HC 1003)
Mr Edward Leigh MP, Chairman of the Committee of Public Accounts, today said:
"The decline of MG Rover between 2000 and 2005 and the final collapse of the company have cost the taxpayer some £270 million, as well as throwing many thousands of car workers out of work. The cost to the private sector and former employees may well exceed £600 million, mainly as a result of a deficit in the pension fund which may have to be met by the Pension Protection Fund. But it could have been even worse. The damage to the local economy would have been even greater without the efforts made by local agencies to help the local economy diversify in the years before the collapse of the company.
"The closure of MG Rover while a General Election was underway presented the DTI with a situation fraught with risks. In some respects it rose to the occasion - for instance by arranging immediate support for former MG Rover employees. But serious gaps in its planning were exposed. The truth is that it had never managed to get close enough to the company to develop comprehensive plans for this kind of scenario and found itself trying to catch up with a rapid developing situation."
Mr Leigh was speaking as the Committee published its 57th Report of this Session, which examined the efforts made by the Department of Trade and Industry to provide support to MG Rover prior to the collapse and the subsequent response by the various agencies to alleviate the impact of closure on the local community.
MG Rover closed on 15 April 2005 with the direct loss of almost 6,000 jobs with further jobs lost amongst suppliers and former dealers over subsequent months. The collapse has profoundly affected the lives of those who worked at the Company, their families and the local community. The Company's demise resulted in substantial costs for the Company's creditors and for the taxpayer, including statutory payments and other support for former employees.
Responsibility for MG Rover's commercial management rested with the Directors and owners, Phoenix Venture Holdings Limited. The Department of Trade and Industry knew in 2000 that the Company was vulnerable in the longer term without a strategic industrial partner. But the Department's relationship with the Company's owners between 2000 and late 2004 was "distant" and it had difficulty obtaining information about the Company's plans. The Company made a number of attempts to find a strategic partner but with only limited calls for support from the Department and UK Trade and Investment.
As the Company's position deteriorated, the Department's contingency planning during 2004 focused on preparing for the Company's collapse. In June 2004, however, the Company announced it was in negotiations with SAIC, a Chinese company, as a potential partner. In November and December 2004, in the light of MG Rover's deteriorating cash position but with the continuing prospect of a deal, the Department stepped up its planning for a possible collapse and, in early 2005, began to consider the scope for offering the Company financial support.
In deciding whether to offer support to MG Rover, the Department had to balance its policy of not intervening in the market to support companies in difficulty and the benefits if SAIC made substantial investment into the UK automotive industry. To help it address its cash flow problems the Company reached agreement with HM Revenue and Customs in December 2004 and January 2005 to defer some of its VAT payments. But it was soon clear this would not be sufficient to keep the Company going. The Department established a set of criteria for a bridging loan to MG Rover. But by April 2005, as progress on the deal faltered, the Department considered relaxing key criteria. It was only when SAIC's advisers told the Department that the deal was off that it abandoned the idea of a loan.
After MG Rover went into administration on 8 April the Department decided to keep the Company going for one week by providing a £6.5 million loan to the administrators. In reaching this decision the Department had to balance the risk that some, or all, of the loan might not be repaid against the chance that jobs could be saved and the benefits of allowing extra time for local agencies to prepare for the consequences of a closure. No purchaser was forthcoming and the Company closed a week later. £5.2 million of the Department's loan will probably have to be written off. The Department subsequently appointed company inspectors to investigate MG Rover's affairs, and hopes they will report their findings by the end of 2006.
The Department, the local regional development agency, Advantage West Midlands, and their various partners were ready to assist former employees and the local economy when the Company closed. Emergency assistance was made available to MG Rover's suppliers, saving an estimated 1,300 jobs, and former employees quickly received statutory financial support, as well as advice on training and employment opportunities.
The impact of MG Rover's closure was reduced by earlier efforts by supply chain companies to diversify and reduce their dependence on MG Rover, assisted by the £90 million provided through the support package made available in 2000. Between 2000 and 2005, the number of companies in the United Kingdom which depended on MG Rover for over 20% of sales fell from 161 to 74, of which 57 were in the West Midlands.
to view Report