DTI caught out by £870m crash of Rover, say MPs

The Department of Trade and Industry was guilty of "serious gaps" in its preparations for the collapse of MG Rover at a total cost of more than £870m and 6,000 jobs, a cross-party committee of MPs concludes today.

The Commons Public Accounts Committee calculates that the decline of the company's Longbridge car plant in Birmingham and its eventual closure in April 2005 cost the private sector £609m and the taxpayer a further £270m.

Edward Leigh, chairman of the PAC, said that in some respects, the DTI rose to the occasion, the closure coming as it did on the eve of a general election. But in other respects it was ill-prepared. "Serious gaps in its planning were exposed," he said. "The truth is it 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 rapidly developing situation."

The department initially offered MG Rover a £110m bridging loan to tide it over while rescue talks with the Chinese car maker SAIC continued. When it became clear these would not succeed, the loan offer was withdrawn and MG Rover called in the administrators from PricewaterhouseCoopers. A grant of £6.5m was made to the administrators to avert redundancies while a buyer was sought. Of this, some £5.2m will have to be written off.

The biggest single cost of the closure is the £500m shortfall in MG Rover's pension scheme which will now be picked up by the industry-funded Pension Protection Scheme. Trade creditors were left being owed £109m. The £270m bill for the taxpayer includes some £156m to help the local West Midlands economy to cope with MG Rover's run-down, £55m in statutory redundancy payments and £18m in unpaid taxes.

Of the 6,000 workers who lost their jobs, some 4,300 are now back in work. The MPs recommended that figures should continue to be compiled on the number of former Rover workers who remained unemployed, as well as on the nature of work obtained by former employees.

The so-called Phoenix Four businessmen who ran MG Rover after its sale by BMW in 2000 benefited from £40m out of the business. Their conduct is now being investigated by inspectors appointed by the DTI, which hopes to receive a report by the end of this year.