SUBMISSION FROM STEPHEN BYERS,

SECRETARY OF STATE FOR TRADE AND INDUSTRY 1998-2001

 

 

1. I welcome the decision by the Committee to conduct an inquiry into the Government and MG Rover. This inquiry provides an opportunity to consider what role, if any, the Government should play when faced with the decision of a multi-national company to dispose of a major manufacturing facility. The Committee's Eighth Report, Session 1999-2000 (HC 643) covered the circumstances leading up to BMW's decision to sell Rover. From the terms of reference of this inquiry it is clear that the Committee does not intend to go over this ground again. So, this submission will concentrate on my decisions and actions during the disposal of Longbridge by BMW and its immediate aftermath.

 

2. Manufacturing is crucial to a strong, stable and balanced economy. Around three million people are employed in the manufacturing sector; it accounts for nearly 70 per cent of our exports; it undertakes most of our business research and development and is responsible for much innovation through the introduction of new products and processes. In order to support manufacturing in the modern world the main role of Government should be to create the conditions for business success which flow from a strong economy grounded in low interest rates with inflation under control and to assist companies in meeting the new challenges that come from globalisation.

 

3. Faced with the decision by BMW to dispose of MG Rover and to enter into negotiations with Alchemy, a venture capital company, the Government had a clear choice. It could simply stand to one side and do nothing, not even express a view about its preferred outcome. Or it could take an active role to try and maintain as many jobs as possible at Longbridge and to provide a breathing space for companies in the supply chain and in the Rover dealerships so that they had time to diversify into new areas.

 

4. During the 1980s and early 1990s we saw what happened when Government adopted a laissez-faire approach and washed its hands of any responsibility by saying that these were solely matters for the market to determine. Individuals, their families and whole communities were devastated as a result. I was not prepared to allow this to happen at Longbridge. I felt that it was possible for Government to play an active and positive role in order to secure the best possible outcome.

 

5. When BMW announced their decision the Government took the view that the most desirable outcome would be to have a new owner of Longbridge committed to maintaining volume car manufacturing. We felt this was essential for three main reasons:

 

a. To minimise the number of jobs to be lost amongst those directly employed at Longbridge;

b. To give an opportunity to the manufacturing supply chain (which employed tens of thousands) and the Rover dealerships (which employed 15,000) to diversify into new areas. This would require time and government support; and

c. To minimise the impact more generally on the UK automotive manufacturing sector.

 

6. The Eighth Report of the Committee in its summary of conclusions and recommendations states:

 

(d) If BMW's assurances of openness to concrete alternative offers is to be taken seriously, it must be prepared to provide potential bidders with at least the minimum information to enable a realistic bid to be put together: Ministerial involvement may be required to bring about this (paragraph 34).

 

(e) We would be surprised were the DTI not to have explored all realistic possibilities of major car manufacturers taking over the Longbridge site. While it is indeed for the market to decide on the fate of commercial enterprises, the evidently chaotic, incomplete and incoherent way in which BMW sought to disengage from Rover strongly suggests that it may not have devoted as much care and attention as it could and should have done to seeking an appropriate company to take the small cars business off its hands. There remains in the public at large a strong belief that there could be an alternative to the Alchemy option. The Longbridge workforce and the thousands of others dependent on manufacturing operations there are entitled to assurances that the Alchemy option - however that turns out in practice - is indeed the best one available from all perspectives (paragraphs 33 and 35).

 

7. In fact the actions I took as Secretary of State were broadly in line with these recommendations and conclusions. The Alchemy proposal was not attractive and would not have delivered the Government's preferred outcome. It would have led to the loss of thousands of jobs at Longbridge but even worse damage would have been caused to the manufacturing supply chain and the network of Rover dealerships. A speedy move to niche sports car manufacture as was proposed would have been a devastating blow. With no time to diversify tens of thousands of jobs would have been at risk with massive damage inflicted on the economy of the West Midlands.

 

8. But while the Alchemy proposal was unattractive to the Government it was not for us to run the commercial negotiations between interested parties. What we were able to do was to facilitate discussions between BMW and the Phoenix consortium. This meant that there was an alternative option available when the negotiations between Alchemy and BMW broke down.

 

9. Contrary to reports at the time I provided no financial support to the Phoenix consortium to assist in its acquisition of MG Rover. I did make available 129 million to the Rover Task Force which I set up in March 2000. This funding was to be used to help diversification and to support projects aimed at economic regeneration and job creation.

 

10. At the time of the acquisition by Phoenix the Government made it clear that in our view the company would need to find a strategic partner to design and develop new models to secure its long-term future as a volume car manufacturer. We knew that under the agreement entered into with BMW there would be enough cash in the company to keep it going for between four to five years. We therefore offered assistance to the company to improve productivity and to help MG Rover identify a suitable strategic partner.

 

11. As a result of the actions taken by the Government in 2000 the West Midlands economy was in a far stronger position to deal with the impact of closure in 2005. This of course is no comfort to those who were affected by the events in 2005 but the numbers concerned were far lower than would have been the case in 2000 had there been a closure at that time or acquisition by Alchemy. The funding provided to the Rover Task Force was able to support and assist the national and especially the regional economy so that it could reduce its dependency on Longbridge. In 2000 161 companies in the UK were dependent on Rover for over 20 per cent of their sales. By 2005 this had been reduced to 74. In 2005 an estimated 12,000 people in the West Midlands were dependent on Longbridge compared to 22,000 in 2000. Unemployment in the West Midlands has almost been halved from 21,000 in 2000 to 11,000 today.

 

12. Professor Nick Oliver from Cambridge University's Judge Business School said recently of the 2005 closure of MG Rover, "the landing was relatively soft but only because the glide path was so long". This glide path did not come about by accident but was as a direct result of Government action in 2000. Had we failed to act at that time then there would have been a crash landing with devastating consequences for the West Midlands economy and tens of thousands of workers, their families and the communities in which they live.