Thatcher feared De Lorean backlash

Scrapping pounds 70m car plant would have 'betrayed' nationalists in Ulster and left British Leyland exposed, Cabinet minutes reveal. Michael Harrison reports
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The Thatcher government pumped millions of pounds of taxpayers' money into the doomed De Lorean car plant in west Belfast because scrapping the project would have made it difficult to justify continued support for the state-owned British Leyland and the Harland & Wolff shipyard.

Ministers were also petrified that pulling the plug on the pounds 70m venture would be seen as an act of "betrayal" by Northern Ireland's nationalist community and serve as a recruitment drive for the Provisional IRA.

The extraordinary political machinations that lay behind the Callaghan government's decision to launch the project and the Thatcher administration's desperate attempts to keep it alive emerge from the first full examination of hitherto secret Cabinet papers and affidavits made public last week by a New York judge.

The southern district court of New York ruled that 250 separate documents, from Cabinet minutes and confidential memoranda to depositions from witnesses including Baroness Thatcher, the former prime minister, should be made public as part of the legal action being brought by the Government against De Lorean's auditors, Arthur Andersen.

In a memorandum to the Cabinet's economic affairs committee dated 2 February 1981 - 12 months before De Lorean's collapse - the then Northern Ireland Secretary Humphrey Atkins said: "To let this project go now would be seen, particularly by the minority community, as betrayal in the one area, economic development, where the Government could act positively. (It would no doubt be contrasted with our continuing support for the largely Protestant Harland and Wolff and unhappy comparisons would certainly be drawn with our current support of BL)."

Referring to a request from De Lorean for the government to guarantee a pounds 10m bank loan, Mr Atkins went on: "Purely commercial considerations would suggest that the case for putting more assistance into De Lorean is, at best, doubtful. But we cannot settle this on commercial grounds only. The De Lorean venture has become something of a symbol for HMG's economic commitment to Northern Ireland and especially to the minority community there."

In a subsequent video-taped deposition, given in 1992 to James Zirin, Arthur Andersen's New York lawyer, Mr Atkins said that discussion of the loan guarantee had come shortly after the death of the IRA hunger striker Bobby Sands. He had been buried near the factory and the whole area was convulsed in riots and attacks on factories, including the De Lorean plant.

"The terrorist organisations, particularly the IRA, found it easier to recruit support for their operations in areas of unemployment than in other areas," Mr Atkins said. Asked if this argued in favour of additional funds, he replied: "Indeed it did. It was one of the many factors."

Approval for public funds to build the extravagant gull-winged car was given at a crucial meeting of the Callaghan Cabinet on 26 July 1978 at which then then Norhern Ireland Secretary Roy Mason argued strongly in its favour. The largely Catholic west Belfast had 35-40 per cent male unemployment and was in "real danger of degenerating into a ghetto". The best counter to the influence of the IRA in the area was to provide new jobs. "It was therefore of the utmost political, social and psychological importance that the project should go ahead. This would be a hammer blow to the IRA. Indirectly, it would save soldiers' lives," he said.

John Banham, then a consultant for McKinseys and later to be knighted after serving as the CBI's director general, took a different view. In a 13-page report submitted just eight days earlier, he warned the Cabinet that it was "an extraordinarily risky venture" and "ambitious to say the least". In a subsequent deposition in 1990, Sir John said: "There are very few projects where hindsight and foresight seem quite so clearly aligned."

Mrs Thatcher had her forebodings as well, although initially her reaction was positive. In her video-taped affidavit, she says: "We had seen pictures of the design of a car and it looked as if it could be a marvellous joy to any young person who could afford it. It was really a rather dashing car."

But she soon became suspicious: "If anyone comes to me for money again and again and again and again, naturally I begin to question the wisdom of the original decision and naturally I am reluctant to give taxpayers' money."

De Lorean had already soaked up pounds 50m by the time the first demand for an extra pounds 21m landed in July 1980. It was discussed that month by the Cabinet economic affairs committee, chaired by the then Industry Secretary Sir Keith Joseph.

Mr Atkins told the committee that there was "considerable risk that the project might prove commercially unsuccessful given the very changed economic circumstances of the motor industry". But he went on: "To refuse support would undoubtedly have an impact on the security situation in Northern Ireland at a time of year when emotions were in any case running high." Within seven months De Lorean was back with the begging bowl, this time asking for the government to guarantee a pounds 10m loan. In a letter to the Prime Minister dated 3 February, 1981, Mr Atkins said: "I am convinced that for reasons mainly special to Northern Ireland we should accede to this request."

Three days later Sir Keith penned a private memo saying that if the government refused it would be blamed. "The longer-term future of the project remains uncertain but if it is to fail, the committee agrees with the Secretary of State that this must be seen to be the responsibility of Mr De Lorean and not the fault of the government."

In a handwritten note at the top of the memo Mrs Thatcher added: "I take it this is the last [double underlined] help we give to this unwise project."

It was not. In December 1981, the loan guarantee was about to run out and De Lorean was back cap in hand yet again asking for a six-month extension and a further pounds 5m top-up to the facility. But by this time the Cabinet players had changed. Jim Prior had taken over from Mr Atkins as Northern Ireland Secretary, Sir Keith had handed over as Industry Secretary to Patrick Jenkin, and Leon Brittan had become Chief Secretary to the Treasury.

Mr Prior told his colleagues that "in commercial terms it would make little sense to end the project at this stage". It was to be a short-lived reprieve. Within a month De Lorean's financial position had deteriorated to an alarming degree. On 21 January 1982 Mr Prior told the Cabinet that without a further injection of pounds 47m De Lorean would have to cease trading in eight days. A month later De Lorean was put into receivership.

The cruellest irony was that after all the symbolism invested in De Lorean, it self-destructed without handing the IRA a propaganda victory. As Mr Prior told the Cabinet on 28 January 1982, "So far there have been no adverse political consequences in Northern Ireland."