Hewitt's Rover inquiry may lack bite, insiders warn

The Government has ordered an independent inquiry into the accounts of MG Rover, turning up the pressure on the four directors and the company's auditor Deloitte amid allegations of a £400m "black hole" in the group's accounts.

The Government has ordered an independent inquiry into the accounts of MG Rover, turning up the pressure on the four directors and the company's auditor Deloitte amid allegations of a £400m "black hole" in the group's accounts.

But some experts questioned whether the inquiry - ordered by Patricia Hewitt, the Secretary of State for Trade and Industry - has the power and remit to be able to investigate fully the reasons behind the car maker's collapse.

Sir Bryan Nicholson, the chairman of the Financial Reporting Council, will lead an inquiry into the accounts of Rover and all companies associated with it, including Phoenix Venture Holdings, the parent company. The investigation will go back five years to the point at which four businessmen, led by John Towers, bought Rover from BMW for a token £10. The inquiry will look at how Phoenix has used £450m left to it by BMW and follow the money trail. It will also examine whether Rover was trading while insolvent.

Reports have suggested the company owes some £1bn to creditors, including up to £100m to HBOS, the bank which provided the financing to keep the car production line rolling. There is widespread anger over the £40m taken out of the company by Mr Towers and his fellow directors in pay and pensions.

Industry sources questioned why a formal DTI inquiry had not been instigated under the Companies Act. This would have far greater powers to examine Rover's performance, gather information under oath and more easily investigate offshore entities. One senior financier said: "The Financial Reporting Council doesn't lack teeth altogether but it has a pretty feeble set of gnashers. Still, I guess it will be quick, relative to a DTI investigation, which would proceed at about the pace of the 'Bloody Sunday' inquiry."

Sir Bryan said he expected to make initial findings within a fortnight. But he warned against rushing to instant judgements. "It's very important regulation is carried out properly and by the book," he said.

The Government has been keen to pin the blame for the Rover collapse, and the 5,000 job losses that have resulted, firmly on the four Phoenix directors.

Yesterday Mr Towers denied he and the other directors had been excessively paid. He said: "Other bosses are paid a lot more than I was and are given larger pensions. It is very easy to get consumed by the character assassination stuff."