Hewitt says the Rover directors accused of asset-stripping 'deserve big rewards'

Motor Show: High-profile support for the 'Phoenix Four' stands in contrast to criticism from MPs

The Trade and Industry Secretary Patricia Hewitt waded into the MG Rover controversy yesterday by giving her full backing to the four businessmen who bought the car maker from BMW even though they have been accused of asset stripping the business to line their own pockets.

The Trade and Industry Secretary Patricia Hewitt waded into the MG Rover controversy yesterday by giving her full backing to the four businessmen who bought the car maker from BMW even though they have been accused of asset stripping the business to line their own pockets.

Ms Hewitt praised the four directors of Phoenix Venture Holdings who paid just £10 for MG Rover four years ago and now stand to net tens of millions of pounds through special loan deals, pension pots and dividend payments.

Speaking at the British Motor Show in Birmingham, Ms Hewitt said: "There were very big risks in starting up Rover again when it looked like it might be the end of the road for Rover.

"I am not going to get involved in a discussion about individual payments but company directors who take big risks and achieve big success deserve big rewards."

It was the first time that a government minister has commented on the Rover affair and given such public support to the Phoenix directors. Ms Hewitt's remarks are in stark contrast, however, to the assessment of Martin O'Neill, the Labour chairman of the powerful Commons Trade and Industry Select Committee. At a hearing two months ago he accused the chairman of Phoenix, John Towers, and its vice-chairman, Peter Beale, of "financial sleight of hand" in the way profitable parts of the MG Rover group had been hived off from its loss-making car division into companies partly or wholly owned by the Phoenix Four.

Mr O'Neill went on: "You have treated yourselves rather well. It is not very good corporate governance, is it?"

Mr Towers, Mr Beale and the two other Phoenix directors, John Edwards and Nick Stephenson, invested an initial £60,000 each in MG Rover. They have since shared in a £10m windfall from a special loan note to the company.

They have also set aside £13.4m for a pension fund to be shared between themselves and MG Rover's chief executive Kevin Howe and stand to make a further £1m each when MG Rover's car leasing arm, MGR Capital, is wound up.

Ms Hewitt went on to visit the Rover stand as part of a tour of the show and praised the performance of the company. DTI sources later stressed, however, that ministers were monitoring the company closely, saying officials were in regular contact to discuss its business plans and attempts to find a joint-venture partner. "Is it something the Secretary of State is keeping a close eye on? Absolutely," one official said. "It is delicately poised."

The Government is determined not to be caught flat-footed again as it was in 2000 when BMW announced it would close Rover if a buyer could not be found. The German car maker says that Stephen Byers, who was trade and industry secretary at the time, was warned on several occasions that it was "five minutes to midnight" but ignored the danger signals.

Mr Howe said he was not aware of any concerns within the DTI about MG Rover, saying he had met officials a month ago. "Absolutely no concerns were raised about the way the company is run and structured," he said, adding that contacts with officials had become less frequent than they had been a year ago. MG Rover lost £111m in 2002 and although it reduced its losses last year Mr Howe said it did not now expect to make a profit until 2006.

The company is in discussions with the Malaysian car maker Proton about developing two new models ­ one a larger car based on an MG Rover platform and the other a smaller car based on a Proton platform which could potentially go into production at Longbridge before the end of next year, helping fill a gap in MG Rover's product range. MG Rover plans to introduce a new medium-sized car to replace the Rover 45 by the end of next year.

Mr Howe said it was also having talks with potential joint-venture partners in China about building the Rover 75 under licence and if these came to fruition then it would drop plans to build the car in a former Daewoo plant in Poland.

Green regulations could add 25 per cent to car prices, says Ford

Ford warned yesterday that the avalanche of safety and environmental legislation being imposed on the motor industry from Brussels could increase the cost of the average car by £3,000.

Roger Putnam, the chairman of Ford of Britain, said the price of a typical £12,000 model could increase by 20-25 per cent over the next four years as the tougher rules came into force under UK law. Speaking on the opening day of the British Motor Show in Birmingham, Mr Putnam said: "I'd like to think that we could pass that on to the consumer. Huge initiatives are going on to reduce costs but margins are very thin in car manufacturing and there is a finite limit to what cost you can take out."

The industry is facing a twin-pronged challenge from European Union directives designed to make cars safer for pedestrians in a crash and cut the amount of pollution they cause.

By 2008, the law will require that all new cars provide protection for pedestrians at collision speeds of up to 10mph. Among the initiatives being developed by manufact-urers are "hydraulic rams" fitted to bumpers, allowing them to retract on impact, and "crushable" headlamps. Manu-facturers are also experi-menting with bonnets fitted with sensors so that they spring upwards in the event of a collision with a pedestrian, instead of caving in. "We will have to redefine the laws of physics," Mr Putnam said.

Other EU directives will require manufacturers to remove hazardous chemicals and materials used in the production of cars, reclaim them at the end of their lives, and ensure that 95 per cent of components can be recycled. The industry calculates it has already cost it £500m just to remove four specific chemicals from the manufacturing pro-cess, such as lead formerly used to line petrol tanks.

Other manufacturers agreed that the regulatory burden was increasing on the car industry but questioned Mr Putnam's figures. Kevin Wale, the chairman of Vauxhall, said a cost increase of £3,000 sounded "incredibly high" while the chairman of another leading UK car maker said: "I cannot believe in my dreams a figure that high."

Tod Evans, the chairman of Peugeot Citroën UK and president of the Society of Motor Manufacturers and Traders, said: "We are deeply concerned about the analysis carried out by Ford and we are going to validate these numbers so that an industry-wide perspective can be given if these figures prove true and credible."

Speaking later at the motor show, Patricia Hewitt, the Secretary of State for Trade and Industry, said the Government was concerned about the cumulative impact of new regulations being introduced from Brussels. "We need to ensure over the next 10 years that we are not over-burdening the motor industry and driving it offshore. That really would be shooting ourselves in the foot," she said.

On a visit to the show, the Tory party leader Michael Howard also criticised the wave of legislation from Brussels, saying: "Too many rules and regulations are coming out of the EU ­ many of them without justification ­ making British businesses less competitive than they should be."