Hewitt gives Rover £6.5m loan to keep car maker afloat

Emergency funding will be provided to stave off the redundancies of MG Rover's 6,000 workers, the Trade and Industry Secretary Patricia Hewitt has announced.

Ms Hewitt said last night that the Government had offered a £6.5m loan which will pay wages and expenses for one week in order to keep the company afloat in case a possible deal can be secured.

The announcement followed a weekend of talks between PricewaterhouseCoopers, the administrator appointed to MG Rover, the Department of Trade and Industry (DTI) and trade unions, in a last-minute attempt to keep the company trading.

Ms Hewitt said the Government agreed to provide the funds "in order to avoid the issuing of redundancy notices at MG Rover while efforts are made to keep the business together". A spokeswoman added that she would be prepared to fly to China with trade union leaders to try to resolve the crisis. The announcement came after it emerged that suppliers of components to MG Rover had already begun laying off staff. Unions estimate that up to 20,000 jobs are dependent on the firm.

One company, based in south Wales, said that it had temporarily laid off staff until MG Rover's future was decided. A supplier of brake components in the West Midlands, close to MG Rover's Longbridge plant, has also begun letting workers go.

Following the announcement, Tony Woodley, the general secretary of the Transport and General Workers' Union, who will address a mass meeting of MG Rover workers today, said: "We will monitor the situation closely and review the adequacy of funds available."

Concern remains that PWC could find it impossible to achieve either of MG Rover's best hopes for survival: a sale of MG Rover, or a deal with Shanghai Automotive Industry Corporation (SAIC). Rescue talks with SAIC collapsed last Thursday. Both options now look remote.

If it is confirmed that SAIC holds the intellectual property rights to the Rover 25, the 75 and the K series engine then it already has the technology to build Rover cars in China. It could also block a deal with any other buyer. A source close to the company said: "We own the product; it cannot be sold, disposed of, or made without SAIC's permission."

However, John Towers, MG Rover's chairman, insisted that a deal with SAIC was still possible.

"There is still a very strong strategic impetus for SAIC to go ahead with the deal," he said. "Given the powerful support and involvement of the Prime Minister, Chancellor, Secretary of State, trade unions and the combined effort of the DTI to support and reinvigorate this process, we should have some optimism for the outcome."

A spokesman for the company said that even before PWC's announcement, work remained to be done completing vehicles on the production line.

If SAIC does decide to begin manufacturing Rover in China, leaving thousands of British workers out of a job, a furious political row is likely.

A spokesman for SAIC said it had repeatedly warned the Government it could not sign a deal with MG Rover if the company became insolvent.

The Conservative leader, Michael Howard, claimed Tony Blair and Gordon Brown were partly responsible for the MG Rover crisis.

"Government must have known what was going on a year ago and they seem to have been very slow and very late into the business of seeing what they could do to help."

The Government has announced a £40m support package for suppliers to the car industry. The announcement followed Mr Blair's pledge on Friday to do whatever he could to support a rescue deal and, on Saturday, Mr Brown announced an inquiry into the finances of Phoenix Ventures, the manufacturer's parent company.