Ministers ignored De Lorean warnings

Ulster scandal: pounds 70m pumped into corrupt car firm to boost econom y and weaken grip of IRA

The Callaghan and Thatcher governments of the late 1970s and early 1980s blew more than pounds 70m of public money on the ill-fated De Lorean car project in West Belfast because it was hoped that it would help provide "a hammer blow to the IRA", according to previously secret government papers.

The revelation is one of several sensational disclosures in Cabinet and ministerial papers that are being released into the public domain by a New York court next week.

The hearing, in which the Government is suing the auditors Arthur Andersen, is part of long-fought preliminaries before the action comes to court. It was decided on Thursday that the papers could be made public, and in a London press release last night the auditors provided the first evidence of how ministers repeatedly ignored warnings about De Lorean because they were so desperate to give Ulster jobs and good news.

The papers even include Cabinet minutes - which were notably excluded from the evidence given in the Matrix Churchill case. In one critical minute from July 1978, the then Northern Ireland Secretary, Roy Mason, says it is "of the utmost political, social and psychological importance that the project should go ahead. This would be a hammer blow to the IRA". His advice followed a warning the previous week by the management consultants McKinsey and Co that "the chances of the project succeeding as planned are remote".

The profligacy did not end with Labour. In July 1980, the Thatcher government agreed to provide assistance, of pounds 14m extendable to pounds 21m, on the advice of the Northern Ireland Secretary, James Prior.

When De Lorean hit a further financial crisis the following February, the Cabinet was asked for a bank guarantee. It was argued: "We cannot settle this on commercial grounds alone. The De Lorean venture has become something of a symbol for HMG's commitment to Northern Ireland."

Mrs Thatcher wrote a note saying: "I take it this is the last [doubly underlined] help we give to this unwise project." The company went into liquidation one year later.

The Government began its legal action against Arthur Andersen in 1985, but 11 years later - and 14 years after De Lorean collapsed - the case has yet to come to court. It took two years just to decide which country the action should take place in: the auditors wanted it heard in Britain; the Northern Ireland Department of Economic Development wanted it held in the US, where courts can award triple the amount of damages.

For two years between 1989 and 1991, the Government and Arthur Andersen fought a separate case over whether the Cabinet minutes and other confidential Whitehall documents relating to the collapse should be made available to the defence. Such documents are not normally released into the public domain for 30 years, but the court eventually ruled in Arthur Andersen's favour.

In April this year, Judge Mukasey of the New York southern district court dismissed the Government's case for the action to be heard under the Racketeer Influenced and Corrupt Organisations Act, which would have permitted it to claim damages of up to $1bn.

The judge also told the Government that if it wanted to keep any of the Cabinet documents under seal then it would have to show compelling justification. On Thursday night, he decided that it had not done so.

In the last five years, depositions have been taken in writing and on video camera from hundreds of witnesses, including government ministers involved at the time, senior civil servants and consultants. Until yesterday, they remained locked in lawyers' safes in New York.

The team of consultants from McKinsey and Co that advised the Government on the project was led by Sir John Banham, who went on to become director general of the CBI. In his deposition, Sir John says: "There are very few projects where hindsight and foresight seem quite so clearly aligned."

De Lorean Motors was formed in 1978 when John De Lorean, now 71, a former Chrysler executive, persuaded the then Labour government to back his dream of a stainless steel, gull-winged sports car. The Government's Department of Economic Development ploughed pounds 78m into the project, much of which was siphoned off into Swiss bank accounts by Mr De Lorean and other senior executives. The venture finally collapsed in 1982 with the loss of more than 2,000 jobs. Only 8,333 cars were built.

Although a warrant was issued for Mr De Lorean's arrest, he never faced trial. In 1984, he was acquitted of cocaine trafficking after a US jury decided he had been entrapped by the FBI.