Tuesday, March 21, 2006

So...What's DTI Actually For?

In case it passed you by, both the Lib Dems and the Tories fought the last election on a platform of abolishing the Department of Trade and Industry (see James Review). Under Labour it's continuing to burn £5bn of our money annually.

According to the DTI (or dti as it prefers to be known):

"In this world of rapid change and intense competition, DTI plays a vital role, working towards a vision of prosperity for all. We do this by facilitating partnerships and promoting fresh thinking between government, businesses, employees, unions, consumers and the scientific community."

Yesterday, in Commons Committee Room 15 (the Lloyd George Room*), the Public Accounts Committee tried to decipher whether such waffle might somehow mean something. Anything.

On the table was the National Audit Office report on the collapse of MG Rover (see previous blog). On the rack were the top officials from the DTI: the current Permanent Secretary, the unfortunately named Sir Bryan Bender KCB, and the temporary acting Perm Sec at the time of the collapse, Catherine Bell.

Ms Bell's appearance was a story in itself, since she is no longer a civil servant. She was the one who reportedly stopped then Trade and Industry Secretary Commissar Hewitt bending the rules to use even more of our money to prop up MGR right through the 2005 election. The Black Spot was handed to Ms Bell shortly afterwards, and she now works in the duty-free at Heathrow.

As you may recall, the NAO found that the collapse of MGR is likely to cost taxpayers around £250m in terms of support for those made redundant and the West Midlands economy. That's quite a wedge and there were any number of aspects of DTI action that raised questions, including for example their intercession with Customs on behalf of the company to swing a tax deferral (resulting in £18m of tax losses). But the NAO particularly criticised an extraordinary £6.5m government "loan" made to keep the company going for a further week last April after it had already gone into administration. We will never be repaid.

The departmental defence is that they reckoned the loan would buy a little more time for MGR's prospective Chinese suitor to ride to the rescue- a fantasy prospect that was described even at the time as "remote". Everybody in the room knew the real reason was the proximity of the May election, and the pressure from Labour ministers to somehow keep the jobs going until after the poll.

PAC members homed in on DTI's plan to provide a £100m "Bridging Loan"- the one Hewitt wanted and Bell reportedly stymied. Ms Bell played a very straight bat when invited to confirm the story, and despite a number of underarm deliveries from members, she declined to hit Hewitt for six. The plan had only ever been one of a range of "contingency" possibilities. What? Even though an offer was given in writing to the Chinese? Ah, but that was only a draft. Plus, they turned it down anyway.

All we taxpayers can do is thank God the Chinese showed some sense. MG Rover has been a public money pit for as long as any of us can remember, and throwing in yet more was never likely to change that.

So coming back to the question, in the case of MGR what did we get for that £5bn pa? Well, back in 2000, the department (then under Bad-News Byers) was heavily involved in persuading BMW to sell MGR to the dubious Phoenix Consortium rather than Alchemy Partners (NAO Report p 21). Why did they do that? Was it that thing about "facilitating partnerships" and "fresh thinking"? Or was it perhaps because they didn't like Alchemy's plans to downsize the company, and Byers/Blair didn't like the loss of marginal votes?

Sadly, when DTI then tried to do some follow-up "facilitation" with John Towers and his dubious Phoenix colleagues, they were given the bum's rush. All they could do over the next four years was to follow events in the press, and put together internal reports that "had not been subject to due diligence" (ie they'd just been cut and pasted out of the FT). Yet when eventually the company started to disintegrate they were only too willing to take MGR management at its word in terms of the life-saving Chinese deal being just around the corner. So they leant on other bits of government to help (including HMRC and FCO) and looked at relaxing their own operating rules so they could pump in yet more public funds.

And of course, as the PAC chairman pointed out, the £250m straight taxpayers loss identified by the NAO is really only the start. The MGR pension fund has a deficit of about £0.5bn, which will now fall on the new Pension Protection Fund (which conveniently became liable just TWO DAYS before the company went into administration). And it has been reported elsewhere that MGR creditors were owed a total of £1.3bn, most of which they will never see. None of these people will be thanking the DTI.

The overall conclusion is clear. If it hadn't been for political interference and DTI's hamfisted meddling, BMW would have sold to Alchemy in 2000. The company would then have been downsized pretty drastically to become a specialist sportscar maker. The downsizing would have been done in a properly planned, orderly manner, paid for by the company itself, not taxpayers. And the creditors would have been paid off. Even the pension fund deficit would have been less problematic because its equity investments were worth so much more in 2000.

And as the specialist producer of MG sportscars, the company would surely have had a much better chance of survival than the clueless fag-end of a defunct volume manufacturer. So a good chunk of the jobs would still be with us today.

We really don't need the DTI. Taxpayers could save £5bn pa, and Britain's economy would function a whole lot better.

* Sitting in the Lloyd George Room listening to tales of grubby goings on in the corridors feels entirely appropriate. A man who had so much difficulty observing the proprieties relating to power, money, and trouser fastenings is the ideal host for sessions of the PAC.

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