§ Motion made, and Question proposed,
§ That this House takes note of the Twenty-Fifth Report from the Committee of Public Accounts in the last Session of Parliament on Financial Assistance to De Lorean Motor Cars Limited (House of Commons Paper No. 127 of Session 1983–84) and of the Northern Ireland Department of Finance and Personnel Memoranda on that Report (Cmnd. 9374 and House of Commons Paper No. 199 of Session 1984–85).—[Mr. Major.]3.57 pm
§ Mr. Robert Sheldon (Ashton-under-Lyne)
First, I thank the Government for finding time for a debate on the affair that led to the De Lorean expansion in Northern Ireland and its subsequent demise. I am grateful to the Financial Secretary to the Treasury for being in his place. A number of the arguments which I and others will advance will be directed to the Treasury and the lessons that it can learn from the experience of the De Lorean enterprise.
This is an especially important debate, but we shall have our normal annual debate on the PAC reports in due course. That debate will embrace all the matters with which the PAC has dealt over the year, but I hope that it will encompass fewer reports than have been before the House in the past. In the meantime, the report before us is an exceptionally important one.
I must thank my colleagues for their efforts over a long and difficult inquiry. They pursued the issue with astonishing assiduity over a long period. Every weekend seemed to be occupied in reading voluminous sheafs of paper. The questioning of my colleagues added enormously to the understanding that we were able to attain. I thank also the Comptroller and Auditor-General of Northern Ireland and his Department. It is not normal to have major issues that involve the CAG of Northern Ireland and his Department, but in this instance we were extraordinarily well served. My colleagues and I are grateful for the way in which the CAG of Northern Ireland and his Department conducted their affairs and produced the resumés, briefs and information to us.
Finally, I thank the Clerk of the Committee and the witnesses who gave evidence. Also, rather exceptionally, I wish to thank Messrs Fallon and Srodes for their book. It is rare for the Public Accounts Committee to consider a matter that has already been dealt with in a book published for general sale, especially in a paperback edition. We believed it to be so valuable that we produced a copy for each member of the Committee so that we could compare the historical narrative with the detailed points that we were able to adduce.
The report is not the final assessment of the De Lorean affair, and we knew from the beginning that it could not be. We knew that we could not uncover several matters. We could have come to the view that we should wait until further information came to light, but we did not. We decided that as there were so many important lessons to be learnt, and as we might have to wait several years before some matters came to light, the report could not wait that long. Much more important than attributing blame is the fact that there are lessons to be learnt, not only in the Northern Ireland Department, but in the entire Government machinery. That must always be our first priority.
The importance of that is shown by our use of language in demonstrating the seriousness of the matter. The PAC 264 is extremely careful about its use of language—it does not go for hyperbole. but for understatement—and we compared the language that we used on this occasion with that which we have used previously. We called the affairone of the gravest cases of the misuse of public resources to come before us for many years.We called ita shocking misappropriation of public and private money.We said:Mr. De Lorean's automobile companies received about £77 million of United Kingdom taxpayers' money and lost most of it within four years.The Committee concluded:There was misplaced optimism by Government and its advisers when the original investment decision was taken and when additional investments were made. and there was ineffective supervision of the project as it proceeded.Our final comment in this part of the report was that hardly any of those who dealt with Mr. De Loreanon behalf of the British taxpayer at a high level can escape substantial blame or criticism for their failure to prevent a major waste of public money.We started by considering the details provided by the Comptroller and Auditor-General for Northern Ireland, and we identified the following issues for examination and exploration: first, the adequacy of the Department of Commerce's assessment of the potential viability of the project; secondly, the rather complicated structure of the De Lorean Motor Company, which was the American offshoot, and De Lorean Motor Cars Ltd., which was the Northern Ireland company, and the large contribution of public funds; and, thirdly, the provision of the master agreement—a legal document relating to the safeguarding of public funds.
We then considered the actions of the Department of Commerce and the Northern Ireland Development Agency during the project. The main issues which arose were the agreement with GPD Services Inc—the Swiss company—for the technical development of the car; the monitoring of the project by the Northern Ireland Development Agency, including the role of the nominee directors, about which I shall have more to say; De Lorean Motor Car Ltd's interest-free loans to the American De Lorean Motor Company; the lack of security for those loans and the method by which they were repaid; the justification for the sharp increase in employment during 1981 at a late stage in the life of the project; and, finally, the lessons that must be learnt from the failure of the project.
We had to ask: how practicable was the scheme from the beginning? Should it have been assisted? We know of the enormous problems in Northern Ireland, and we know of the special difficulties that existed with jobs available in east Belfast but none in west Belfast. The scheme would have produced 2,000 jobs in west Belfast, which would have been of enormous benefit to the country and to the people of Northern Ireland.
Then we had to consider the assessment by the Department of Commerce and how adequate and effective its negotiations were. We had to consider whether there was a sufficiently experienced team to deal with such a complex proposal. The Committee considered the importance of monitoring, because, in all its activities, it places great emphasis on the way in which monitoring is carried out. That is the only control we have. We consider several matters when we investigate a project, and the advice which we give from the start is that the Government Department concerned should be clear about what it wants 265 to do. Also from the start—not at a later stage—we want the Department to set in train a scheme for monitoring the developing project. Finally, we want the Department to be in a position unequivocally to compare outturn with expectation.
The importance of monitoring is obvious: it gives us an understanding not only of what has happened, but of what is happening at the time. Therefore, if matters are not going according to plan, modifications can be introduced. That might strike hon. Members as being obvious and reasonable, but, unfortunately, we investigate many companies where that was not done. Usually, the monitoring is carried out after the programme has been fulfilled. We must always repeat the necessity for monitoring at the beginning of an operation.
Then the Committee considered the extremely tight timetable. Was it accepted unwisely? Should the business have been conducted differently? In this respect, we must consider the circumstances in which the decision was made. The first meeting between the Department of Commerce and De Lorean was on 12 June in New York. At that meeting he put forward a scheme for engaging 2,000 people to work in west Belfast. Between 19 and 21 June, John De Lorean visited Belfast. The heads of agreement were signed on 21 June. On 29 June a joint team from the Department of Commerce and the Northern Ireland Development Agency visited the United States.
Our criticism is that the joint team consulted no American banks, financial institutions or automobile companies. Indeed, at no time did the joint team approach any American bank or financial analyst for a report. Of course, it was said that De Lorean had received offers from Detroit, Puerto Rico and the Republic of Ireland. De Lorean required the Department of Commerce to reach a decision within the short period of 16 days. No one else was subject to such pressure; indeed, Puerto Rico had been considering the matter for a year.
On 7 July a report was commissioned from McKinsey. It is a pity that that was not done earlier. Its points are set out in paragraph 18 of our report. The four main business risks that McKinsey identified were: first, that the ambitious sales and marketing share projections might prove unattainable; secondly, that the technical difficulties of developing a new plastic body might not be resolved in time, resulting in a sharp increase in capital expenditure requirements; thirdly, that the timetable for moving from development to production had no margin for slippage, because the financial and operating projections assumed that the operation would be outstandingly efficient from its inception; and, fourthly, that the project depended largely on one man—John De Lorean—and that its viability would be in doubt should anything happen to him.
McKinsey concluded that the Department of Commerce was being asked to fundan extraordinarily risky ventureand thatthe chances of the project succeeding as planned are remote".It concluded that "common prudence" suggested that decisions should be based on a number of less optimistic assumptions than those put forward by the company. The Department of Commerce subsequently invited De Lorean Motor Company to comment on the risks and judged that DMC answered very effectively the McKinsey reservations as to the viability of the project.
That was not the view of the Public Accounts Committee. In paragraph 48, we state: 266DOC considered that 7 July 1978 was the earliest practicable date to commission McKinsey.As negotiations had started nearly a month earlier, as early as 8 June, we were not convinced by that argument and would have expected that crucial assessment to be called for before the heads of agreement were signed. We were very impressed with the assessment that McKinsey made in so short a time. Moreover, we considered that the Department of Commerce and the Northern Ireland Development Agency team gave insufficient weight to McKinsey's conclusions. We were extremely concerned that the Department of Commerce so readily accepted De Lorean's predictably optimistic response to McKinsey's strongly stated reservations which, in the event, unfortunately turned out to be so accurate.
Besides the late commissioning of McKinsey, there was an inadequate check of what was happening in Puerto Rico and in the Republic of Ireland. The team was told that it was the company that had broken off the negotiations, but, in fact, as we know, it was the Republic of Ireland that pulled out. There was a feeling that many others were being attracted to the project and that there was a race as to who would get in first, when no such race existed. Perhaps the most astonishing reply that we received on this aspect of the inquiry, mentioned in paragraph 45, was when we asked what further checks, if any, were made on Mr. De Lorean's creditworthiness or business standing prior to the completion of the master agreement. The reply received was to the effect that the agreement was between the De Lorean companies and the Department of Commerce and the Northern Ireland Development Agency, not Mr. De Lorean personally. It said:There was no need to investigate his creditworthiness since no reliance was placed on him to input capital from his own resources".There was no independent engineering assessment of the state of development of the car. In practice, the Government thought that they were buying the car, when they were purchasing the concept. Much of the design had to be undertaken subsequently, in ways that I shall describe. Finally, I repeat that the risks outlined by McKinsey were given insufficient weight, when they should have served as a warning.
I refer now to the structure of the De Lorean companies and the very high level of contribution from public funds. The point that we make strongly in our report is that the Department did not seek an adequate contribution of real risk capital from Mr. De Lorean, but left the control of the companies in his hands. As a result, De Lorean had control with little risk, and that was not a foundation on which the project was likely to prosper. That was the conclusion that we reached.
I should like to refer next to the provisions of the master agreement in relation to the safeguarding of public funds. I am concerned with the ambiguity in the master agreement, which was signed in July 1978. It was a legal document, but not as tightly drawn as it should have been. It enabled Mr. De Lorean to behave as if there were only one company, of which he was the sole proprietor. When one bears in mind the investment that he put in and the enormous investment that the British taxpayer put in, one realises that that was wrong. Several opportunities subsequently presented themselves to the Government to alter the master agreement to establish more effective safeguards, but unfortunately those opportunities were not taken.
267 One important aspect is the agreement with GPD Services for the technical development of the car. GPD was a Swiss-based company registered in Panama. I suppose that if that had been more widely known there would have been a greater alert as to what was going on. Because of the whole way in which the agreement was operating, tight monitoring and control was crucial. We say in paragraph 89:NIDA and its nominee directors gave Mr. De Lorean too much freedom to manipulate the companies to his own ends.As an example, on 28 July 1980 there was an entire reconstitution of the board of De Lorean Motor Company, with new directors, including his wife, on the board. The nominee directors were not consulted about what was changing in an important part of De Lorean. The presence of nominee directors, inexperienced in the automobile industry, was not sufficient to ensure that the public funds committed were adequately protected and prudently applied.
The agreement with GPD came about because for some 20 years Colin Chapman had had an arrangement with Mr. and Mrs. Juhan, who were importers and distributors for Lotus in Switzerland. Mr. Chapman was a former chairman of Lotus. A contract was made between De Lorean and GPD Services for $17.3 million to carry out the engineering work. In fact, the contract stipulated that $17.3 million was to be paid in advance as a lump sum. Why was it to be paid in advance? We deal with the matter in paragraph 60 of our report. We say:The intention to contract with a Swiss company, about which nothing was known, and to pay what was envisaged to be the total cost of the work in advance ought to have been regarded by NIDA as being so unusual as to require close scrutiny.Unfortunately, that scrutiny was not given. The agreement of the nominee directors should have been withheld.
I now come to the slightly complicated matter of the financing arrangements. I shall not spend too long on it. Those who wish to go into it further will find it all in the report. However, it would be wrong if I did not deal with it at least in moderate depth. A particularly unusual transaction occurred in May 1979 when, after the agreement, Lotus repaid GPD the $4 million that had been paid to it in November 1978 as a good faith deposit. That $4 million formed part of the funds that were misappropriated from GPD.
We were told that when De Lorean Motor Cars Ltd. commenced making payments to GPD in 1979 there was no reason why the nominee directors or NIDA should have been concerned at that development as it was embodied in the GPD contract, which provided for the payment to GPD of certain costs in addition to the advance payment. However, I must quote Sir Kenneth Cork, who was the liquidator. He took the view:if you paid someone US $17.65 million to procure the development of a car, you would not expect to pay any more until approximately US $17.5 million had run out; that is why I was astonished.We echo that astonishment and regard it as an extremely serious lapse by the nominee directors and the Northern Ireland Development Agency that they did not challenge the payments.
Between April 1979 and December 1981, almost £11.5 million was paid by De Lorean Motor Cars Ltd. to GPD Motors in respect of the technical development of the car, over and above the advance payments totalling $17.65 268 million. We thought the level of control to be utterly inadequate. Over $17 million was misappropriated without detection by those with responsibility for monitoring the scheme.
§ Mr. Nicholas Winterton (Macclesfield)
In view of his serious allegations about the abuse of public funds, can the right hon. Gentleman tell the House how many of those involved have been removed from their positions as a result of grotesque incompetence?
§ Mr. Sheldon
The Public Accounts Committee is not responsible for going into such matters. That is one of the reasons why the Committee wanted a debate on the Floor of the House. Problems are involved which are not for the Committee to resolve. Our task was to ensure, to the best of our ability, that the House was informed about taxpayers' money which had not been properly applied, and that any lessons to be learnt were given to the House. Other matters are for those with other responsibilities.
I have had to go into the finances of the case in detail because it is necessary to explain how the money went adrift, or, as Sir Kenneth Cork said, "went walkabout". Contrary to the original intention, both the American parent company and the development of the car were largely financed by the taxpayer, and over $17 million was misappropriated without detection by those engaged in monitoring the project. Not one penny of that S 17 million paid to GPD was used for the development of the car.
I shall now deal with the interest-free loans by the Northern Ireland subsidiary company, De Lorean Motor Cars Ltd., to the American parent, the De Lorean Motor Company. We thought it wrong for the Northern Ireland Development Agency to permit De Lorean Motor Cars Ltd. to make any loans to the American company. There was no need for that. In the event, the United States company received £6.5 million in loans from the Northern Ireland company. The use of taxpayers' money to fund the activities of an American company over which the Northern Ireland Development Agency had no control was unacceptable. The agency was clearly wrong. The loans were made without any form of agreement. There was no security, no terms for repayment and the loans were interest-free. That was a wrong decision, and we draw attention to it in the report.
When Mr. De Lorean went to Northern Ireland in early August 1980, he insisted upon a top-level meeting with the Government about the company's request for more funds, totalling £14.9 million. That arose mainly from cost overruns, which had been with the Government since January 1980. The application had received the support of the Northern Ireland Development Agency at a board meeting on 28 May. The agency thought that £14.9 million would not be enough and suggested that a larger sum should be considered. McKinsey had predicted a need for between £14 million and £21 million.
Paragraph 28 of our report states:At a meeting on 5 August between Mr. Humphrey Atkins (by then the Secretary of State) and Mr. De Lorean, the latter indicated that the company required £20 million of extra funds, of which he expected to raise £6 million himself. The Government agreed to a loan of £14 million.That was followed during 1981 by a large increase in the number of employees at the Northern Ireland factory. The target had been a maximum of 2,000 employees. In April 1981 a further 1,000 employees were recruited, and by 269 January 1982 2,600 workers were employed in the factory. That large increase in employment caused a number of problems in connection with running the factory.
A second shift was introduced, but the company's training centre was unable to handle the high intake. Untrained labour had to be put straight on to the production line, and the quality and productivity deteriorated. The cash flow was put under additional strain. The extra production was not matched by sales, and by the end of January, of the 8,000 cars produced, only just over 3,000 had been sold. That left high stock levels for dealers and the company. A wrong decision was taken which owed much more to Mr. De Lorean's desire to attract new funds from investors in the United States than to any realistic assumption about sales projections for the car.
What lessons can we learn from all this? The most important lesson is about how the Government operate in high-risk enterprises. As in this case, the situation is sometimes so bad that the problems are not regarded in quite the same way as they might be in relation to other forms of investment. How should the Government operate in high-risk areas, given the need to consider them and not to turn them aside?
First, the Government must match the experience and the negotiating skills of the people with whom they deal. Resulting agreements must be unambiguous to prevent the problems which inevitably arise when one is dealing with circumstances which are not normal for such investments. Secondly, the Government must insist on adequate time in which to carry out a full and detailed assessment of a potential project's viability.
In the private sector an individual might come to conclusions based upon a hunch, a guess or an informed understanding and he is, therefore, able to act more quickly than as a Government Department. Unfortunately, the Government cannot do that. The Government must account for their actions to the taxpayer. The Government must be given adequate time. If that is not open to them, reluctant though they might be, they must waive a decision. The quality of management must be thoroughly assessed by the Government.
§ Mr. J. D. Concannon (Mansfield)
My right hon. Friend must understand what was happening in Northern Ireland in 1975–76. Today we are talking about one of the failures, but Northern Ireland has had many successes which would not have been successful under the conditions that he describes, because they would not have got past first base.
§ Mr. Sheldon
I shall be dealing with the specific problems in Northern Ireland. It is clear that the Government must take certain risks. I am explaining how such risks should be taken without putting too much of a brake on the work which is so necessary in Northern Ireland and elsewhere.
The quality of management must be thoroughly assessed by the Government, particularly when one man appears to be essential to the success of a project. Much greater investigation and control are needed. Where a new company is involved, the personal qualities and reputation of the person concerned need to be investigated most thoroughly. With a new industrial project, there must also always be a significant contribution of risk capital from the industrial side. The company must have a considerable stake in the project. It is no use relying on the expertise 270 and understanding of the person concerned if he does not have a substantial element at risk himself. When contemplating any high-risk investment, the Government must consider the worst case. They must consider what will happen if things go wrong, how far things could go wrong, and the limits of the Government's risk. It is also important that the detailed monitoring arrangements should be agreed in advance. They must be set up when the decision is made, so that there is no uncertainty about how the monitoring is to be carried out.
It is also essential that the role of nominee directors should be clarified throughout the whole Government machine. A number of nominee directors are uncertain of their role. The Public Accounts Committee has examined the problem. The Committee may take further evidence, and it will certainly submit a report on the role of nominee directors. It is assumed that they constitute a proper method of control, but both on the Government side and in the business world there are wide variations in the operation of nominee directors and in the interpretation of their role. Assumptions made about the effectiveness of control by nominee directors may not be valid, or may have only partial validity.
Finally, phased investment, wherever possible, is the best practice. Again, there must be tight monitoring so that, when so much money has been spent, the exact position is known. The passage of money and the progress of the scheme must be seen to go hand in hand and to be related one to the other.
The Committee had a memorandum from the Department of Finance and Personnel. The memorandum and the subsequent correspondence show that the Northern Ireland Departments have accepted the Committee's criticisms of the handling of the project and have agreed with the Committee on the lessons to be learnt. The Committee has also been assured that the lessons will be properly applied. The Committee needs an assurance from the Government that the lessons will also be applied throughout the United Kingdom by all other Government-funded bodies with responsibility for industrial development investment.
What progress is being made by the investigation into the affairs of the De Lorean companies by the receivers and the Royal Ulster Constabulary? Is every effort being made to recover the maximum amount of the public funds invested in the project? I hope that the Minister can tell us how much of the money invested has been recovered by the Government to date.
My right hon. Friend the Member for Mansfield (Mr. Concannon) spoke about operations in Northern Ireland and the general aspects of industrial development there. I acknowledge the difficulties faced, at present and in the past, by those who have the great responsibility of attracting mobile investment into Northern Ireland. They operate in a highly competitive market. They have to cope with the pressure of the highest level of unemployment in the United Kingdom. They have to overcome the often distorted image of Northern Ireland shown to the world by the media before showing the many positive attractions that it has to offer. One of the most important of those attractions is the plentiful supply of skilled, flexible and dedicated labour. The Committee stated in the report:We would wish in this context to emphasise that in our view no blame for the failure of the De Lorean project rests with the workforce—on the contrary they emerge with great credit.The Committee was very impressed by the work force.
271 When assessing the viability of a proposed enterprise in which public funds are to be invested, a delicate balance has to be struck between risk and reward. Both at the initial decision-making stage and later in the monitoring of the project one has to follow a difficult path between an over-careful concern with detailed control and over-reliance on the management's capabilities. The Committee concluded:it is our view that, in the De Lorean case, they were struck at the wrong place at each stage.The evidence of Sir Kenneth Cork carried great weight with the Committee. He said that a smaller scheme might have been viable. One might ask whether De Lorean would have accepted a smaller scheme. That is another matter. The lessons here for every Government Department to learn are apposite and should be well heeded.
§ The Minister of State, Northern Ireland Office (Dr. Rhodes Boyson)
I agree entirely with the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) that the report is most important. I am sure that the whole House will wish to join me in thanking the Public Accounts Committee for its painstaking examination of the very difficult and complex issues involved.
I think it would be useful if I made the Government's position perfectly clear right at the outset. This position has, of course, been affected and guided by a careful study of the Public Accounts Committee report itself. I shall be as brief as possible as I know that many right hon. and hon. Members on both sides of the House wish to take part in the debate.
I have no doubt that the only basis for successful industrial development in Northern Ireland or anywhere else is through soundly based enterprises, with the private sector playing its proper role in taking risks and generating profits, and with every project that comes forward for Government assistance being scrupulously researched and assessed and meticulously monitored.
Let me recall that at the time when this project was conceived the Government of the day, like the present Administration, were concerned about the very high level of unemployment in the Province. This was—and still is—particularly severe in west Belfast, where unemployment was then running at five times the average in greater Belfast which itself was well ahead of the Great Britain average. As we all know, these are the conditions in which terrorism can easily recruit on every street. Given the complex mixture of security, economic and social problems in Northern Ireland, there has been a natural desire for all Governments to explore every possible means of employment. All the conventional approaches to industrial development had been tried and failed in west Belfast. The normal industrial development project is spawned by an established company resting securely on a number of proven products, with substantial assets and financial backing. Such projects had shied away from Northern Ireland at that time.
By 1977 the flow of inward investment to Northern Ireland had virtually dried up. Between 1970 and 1977 only one American company decided to invest in the Province. A state enterprise—Strathearn Audio—had been attempted and had foundered. It was against that 272 background that the Government negotiated with De Lorean, hoping to bring together an experienced and successful engineer and business man, with a good team and a seemingly viable idea, and with Government providing most of the capital.
The De Lorean project, with the prospect of more than 2,000 jobs, was very attractive. As the right hon. Gentleman has said, Northern Ireland was only one of several areas competing for the investment. As a deal with Puerto Rico had virtually been completed—indeed, compensation had to be paid afterwards because the deal was not carried through—the negotiating pressure was intense, especially as regards the time scale. About £40 million of American federal money was on offer if the project went to Puerto Rico, while Detroit itself was putting up money for the De Lorean project, believing that if the car went elsewhere the long-term viability of the Detroit industry could be affected.
The right hon. Gentleman has drawn attention to the speed with which the deal was arranged. He has referred to the lack of contact with American banks. However, the McKinsey report was available, and Mr. De Lorean's reputation at that time, both in America and around the world, had to be borne in mind. In his recent autobiography, the head of Chrysler said that De Lorean was a first-rate auto man and a super engineer for Pontiac. Such was the reputation of the person involved.
There was also the report written for Puerto Rico by the reputable auditors Kearney, which says:Kearney feels that DMC's marketing, production and organisation plans are sound. Assuming that significant delays or reversals are not encountered, Kearney feel that DMC should achieve its initial sales and production objectives.Similarly, a report done for De Lorean by Booz, Allen and Hamilton stated:Entry into this market with its high capital investment and entrenched competition obviously involves considerable risk. Nonetheless, we believe that your product, your people and your business concept in combination should prove the necessary elements for success.Those reports were available to the Department at that time.
§ Mr. Nicholas Winterton
It is strange that my hon. Friend should be seeking to make excuses for the lack of adequate inquiries about the pedigree and career of Mr. De Lorean, because anybody in the motor industry, not least General Motors, could have told the Department that De Lorean had been dismissed from General Motors. If the Department had asked the editor of the Detroit News, which has much to do with the motor industry, it would have found out that he had an extremely seamy past. Can my hon. Friend assure me that the Government will in no way grant money to any business man in this country on the basis that they granted it to De Lorean?
§ Dr. Boyson
My hon. Friend's latter point is the easiest one to answer. One thing that has changed, and one of the lessons that have been learnt, is that money will not be put by the Government into projects in Northern Ireland unless private money is also put up. It is no longer a question of somebody coming along with an idea and the Government providing the money. In all the schemes going through now, there must be at least £1 of private money to any £1 of help from the Government.
I realise that my hon. Friend the Member for Macclesfield (Mr. Winterton) has had a deep and intense interest in this matter for a long time. I quoted the head 273 of Chrysler, which, with all due respect to my hon. Friend, is a well-known company. Only three months ago, when he left that company, I read a great deal about the reputation of Mr. De Lorean. If my hon. Friend knew that at the time, he should have drawn it to the attention of the Northern Ireland Office. Similarly, if he knows of anyone who the Government are funding at present in Northern Ireland who is likely to come to a sticky end, we should be grateful for that information.
§ Mr. Concannon
I cannot understand how the myth has arisen that no one went into Mr. De Lorean's background with General Motors. I spent some considerable time examining his background, certainly with General Motors. The hon. Member for Macclesfield (Mr. Winterton) says that Mr. De Lorean was sacked from that company, but I can only quote what a representative of General Motors told me when I asked him whether De Lorean could do the job. He said, "Yes. If that is the product you want, he is the only person in the world who can do it. He has a proven background, and if he came back to General Motors tomorrow we would put him on such a project." That is the sort of reaction I got from General Motors, from Chrysler in Pittsburgh, and from almost everyone I asked at the time.
§ Dr. Boyson
I welcome the intervention of the right hon. Member for Mansfield (Mr. Concannon), who occupied the office that I now hold during what was obviously a difficult time. They are always difficult times in Northern Ireland. In fairness, I should say that the pressure was not all one way. It was made clear to Mr. De Lorean that assistance would be available only if the project was located in west Belfast. He did not have carte blanche to set up anywhere in Northern Ireland.
Having made the decision to compete for the project, efforts were then made to get the best assessment available in the time available, bearing in mind the fact that several places—Detroit, Puerto Rico and the Republic of Ireland—had shown their confidence in the project by making firm offers for it. When it came to the decision to assist De Lorean, a balance sheet of positive and negative factors was drawn up by Ministers in Northern Ireland. In the light of that assessment, the Government concluded that the balance of risk lay in favour of the project. I know from first-hand experience how heavily the responsibility for conditions in Northern Ireland weighs with Ministers, and I can understand the good intentions behind this experiment in policy.
When the Government took office in 1979, loans and share capital amounting to £52.8 million had already been offered and accepted. Of this, about £13.48 million had been paid to the company. The Government believed that unilateral termination of the agreement at that stage would have resulted in a cost to public funds in excess of the amount estimated to carry the project to completion. In 1980, the Government, after taking legal advice on the terms of the 1978 agreement, concluded that further assistance of £14 million should be made available to the company in addition to the £52.8 million already offered.
It is worth remembering that in 1981 the Government considered that there was a prospect that the project might be successfully established, albeit at a greater cost to public funds than was provided for in the original agreement. As late as November 1981, McKinsey—during the two years that company presented about 10 274 reports to the Government—which had been closely involved in the monitoring of the company, forwarded a report to the Northern Ireland Development Agency under cover of a letter which contained the following passage:You may detect in the report a rather more optimistic tone than has been characteristic of our previous reports. I think this is justified. The feed-back that we received from our dealer survey, my impressions gained from discussions with two area managers at the New Jersey Quality Assurance Centre all suggest that there is at least a good possibility that by the end of the year DMC will be reporting consolidated profits perhaps of the order of 30 million on 350–400 million dollars of sales. In other words the very considerable risk taken by HMG in agreeing to back the project in the first place might be seen to be paying off.The road to hell is paved with good intentions, and the fact is that the project failed. When that happens, it is essential to extract every lesson that we can from the experience, and the House will be grateful for the lessons which the PAC listed in its report. This is not an academic exercise. Its object is to incorporate the lessons into current operating procedures and practice. In this respect, we owe a great debt to the PAC for the detailed work that it carried out.
I should record that the Public Accounts Committee's report presents a comprehensive analysis of the potential pitfalls in attracting and developing new industrial projects. It will help to shape the thinking of everyone who is involved in this area. For my part, I can assure the House that all of the major recommendations in the report have been accepted and incorporated into the procedures for handling industrial development in Northern Ireland.
As the Department of Finance and Personnel's memorandum of response of 24 October 1984 and the supplementary memorandum of 8 January 1985 make clear, Government policy has been changed. A project such as De Lorean would not now be supported. Industrial support is made available only for projects in which a substantial part of the financial resources is provided by the private sector. [Interruption.] The Industrial Development Board's operating arrangements and investment criteria are now devised in the light of the experience gained in the De Lorean case and are fully compatible with the recommendations in paragraphs 91 to 97 of the Committee's report.
I should say in response to a comment that I heard from the Opposition Benches about unemployment in Northern Ireland—no doubt made with the best of intentions—that we have not stopped investing money in what we believe are viable projects. If we consider what we are spending now to help industry in Northern Ireland—I trust that we are spending it sensibly, as did most previous Governments—I do not believe that the Government have anything to be ashamed of.
§ Mr. Concannon
I simply wished to draw attention to unemployment in Northern Ireland. Some of my colleagues have high unemployment in their constituencies, but it is as nothing compared with Northern Ireland. If the Government want to do something about it, they must take risks commensurate with the problem. With the addition of the security problems in Northern Ireland, that is the context in which we should place this debate.
§ Dr. Boyson
I appreciate the points made by the right hon. Member for Mansfield. I have a weakness in the House sometimes in that, as an ex-teacher, I always hear what is being said at the back of the class. Therefore, I issue an apology not only to the right hon. Member for 275 Mansfield but to my hon. Friends and to other Opposition Members. I shall, after 11 years, try to disabuse myself of that habit.
The IDB's operating arrangements and investment criteria are now devised in the light of experience in the De Lorean case, and are fully compatible with those recommended in paragraphs 91 to 97 which, with regard to future policy, are the kernel of the report. In particular, they ensure, first, that the IDB has access to a range of skills appropriate to each project and to technical advice, and takes whatever time is required fully to assess project viability, including consideration of the worst case scenario. This week I have been looking into the sort of technical advice that we have been using on projects and the Mason that projects have been accepted or rejected on that technical advice.
Secondly, management quality is examined as part of the assessment process and, where a new company is involved, the personal qualities and reputation of the entrepreneur are exhaustively investigated. Thirdly, the parties' responsibilities are clearly defined in financial assistance agreements. Objectives and standards of performance and, where appropriate, detailed monitoring arrangements are agreed in advance.
Fourthly, where possible, agreements are based upon the principle of phased investment with a maximum upfront commitment from the private investors, and care is taken to ensure that there is an adequate reserve of private funds available should the project run into difficulties. Lastly, careful consideration is given to the company structure. The aim is to secure a legal commitment from the company which has overall or ultimate responsibility in the performance of obligation.
Moreover, in line with the Committee's recommendations in its report, the position of nominee directors has been reassessed and detailed formal advice on their role and responsibilities has been given. A document on the role and responsibilities of nominee directors was prepared by the Industrial Development Board, in April last year, I believe, and a copy has been made available to the Committee. The role of nominee directors is a difficult one, and we believe that in preparing this document we shall assist in future policy.
§ Mr. George Park (Coventry, North-East)
When a person becomes a nominee director, does the Minister's communication deal with the aspect that that person then owes his first loyalty to the company, not reporting to Government?
§ Dr. Boyson
I know that the hon. Gentleman is an expert on the automobile industry. He has put his finger on the central question whether, when a person is put on a board, his first responsibility is to the company which has appointed him. Who pays for that? About £5,000 was paid in this case to the nominee directors or to those who put them on the board.
I have been considering this week what can be done. From discussions, it would seem that if a nominee director who is put on a company board to watch the interests—and that is what is done by the IDB in Northern Ireland—finds that there is some information which he cannot bring back which in his view will prevent him from doing his job properly and may put at risk the future of IDB investment in the company, he has to resign. This question 276 will have to be discussed more widely. It is a difficult matter, and the hon. Gentleman was right to put his finger upon what could be a major weakness. If such a nominee director cannot bring back information and do the job for which the IDB appointed him, he should resign because he cannot do the job that he was appointed to do.
The Supplementary Memorandum of Response of the Northern Ireland Department to the Public Accounts Committee lists the 13 principles which the Northern Ireland Department will now follow in assessing and supporting new industrial projects. Lord Bruce-Gardyne, a Member of the other place and a former Member of this House, who has always surveyed the De Lorean project with at least a highly sceptical eye, stated:I was highly impressed, in particular, by the 13 specific steps to which the Northern Ireland Department is committing itself and its officials in the light of another plausible adventurer happening to appear before them."—[Official Report, House of Lords, 27 February 1985; Vol. 460, c. 993.]As for the De Lorean case itself, the Government share the Committee's serious concern about the loss of public funds and are determined to take all available steps to recover as much of the loss as possible. I am sure that the House will be aware that there are certain aspects of the case which I should not discuss because of factors affecting legal actions relating to the De Lorean case. The Government and the receivers, however, have initiated legal action in the United States and in Switzerland. The United States Trustee in Bankruptcy has legal actions in hand on behalf of creditors, of whom Her Majesty's Government are the largest, against a number of parties, including De Lorean.
It has been asked how much money we have reclaimed. A total of £6 million has already come back and, with regard to the site at Dunmurry, the sum of £1.8 million. The Government will leave no stone unturned to get back in every way possible the money that went adrift or that went "walkabout," as was mentioned earlier by the Chairman of the PAC.
§ Mr. Nicholas Winterton
My hon. Friend has talked about the various sources from which the Government hope to recoup some of the taxpayers' dramatic losses. He has not mentioned the action that the Government were taking against Arthur Andersen. Can he update the House on what the Government are doing in respect of the accountants Arthur Andersen in New York?
§ Dr. Boyson
I am grateful to my hon. Friend for asking that question. I have a side-note prepared because I thought that some hon. Gentleman might ask the question. It was not a plant. I assure the House, given the strong feelings of my hon. Friend the Member for Macclesfield on the De Lorean case, that he and I are not hand in glove. I assure my hon. Friend that Government action in the case to which he has referred will be vigorously pursued.
Out of fairness to Northern Ireland—and this was said by the Chairman of the PAC—I must put on record the fact that the tragedy of the failure of the De Lorean project was not the fault of the workers of the company or of the people of Northern Ireland. The factory was built, the work force trained and the product brought to market within two and a half years. The Public Accounts Committee acknowledged this at the beginning of its report.
The Public Accounts Committee also commented that it would not want 277the De Lorean experience to lead to the Industrial Development Board becoming an over-cautious bureaucratic organisation in danger of rejecting opportunities for fear of criticism".There has to be a balance between careful assessment of a project and joint risk-taking on one side and careful control of public money on the other. That is a difficult decision for Ministers, and even more difficult in Northern Ireland.
I regard it as vital that, if we are to assess properly the lessons of this case and the Public Accounts Committee report, we must not confine ourselves to the easy line of criticism simply by being wise after the event, but we should try to understand the circumstances of the time and put ourselves in the position of those who made the decision and monitored the project. I am pleased to say that the Committee's report has emphasised this point.
It is said that those who ignore the lessons of history have to live them again. I trust that, with the help of the PAC report, that does not happen in this case. I shall be interested to hear the views of right hon. and hon. Members on this case and on the Public Accounts Committee report.
§ 5 pm
§ Mr. Roy Mason (Barnsley, Central)
I, too, wish at the outset to welcome the PAC report. It is well known in the House that I am not a lover of Select Committees or of the Select Committee system. However, the PAC is a time-honoured and respected body of the House, and over the years Governments have usually appreciated its work, responded as helpfully as Government policy would allow, and invariably taken on board many of the Committee's recommedations.
That was not wholly true on this occasion. Only after the PAC had objected to a poor and inadequate response from the Government did it get a few more positive acceptances of its recommendations. There was a poor response because the Government were embarrassed. The cash had been lost or had gone walkabout. That had happened in their time, not in Labour's time. As a result of the PAC report, new operational guidelines have been issued to those Departments and senior civil servants working within the Government's policy.
The Government's policies have changed. They now have a less interventionist policy. Their overall policy is less caring about the social distress and severe enconomic problems of areas and regions of the nation. Unemployment has risen dramatically. Ministers and senior civil servants have been frightened off taking initiatives and using Government intervention techniques to encourage industry, especially in those parts of the country to which, for a variety of reasons, private enterprise will not go.
Stilted, frustrated, shackled expertise has been the order of the day in Departments concerned with industry, commerce and in the development boards. Their enterprise and spirit has been dulled. They are no longer interested in searching for jobs, and their political masters have adopted the same attitude. There is no political will in the Government to fight the disease of unemployment.
That is the Achilles' heel of the Government, and it will be their downfall. Hence the fifth columnists in their ranks who are determined to undermine and ruin their noninterventionist strategy. All those forces, together with those of her Majesty's Opposition, will in due course succeed in their endeavours because there will be 278 Merseysides, Bogsides and west Belfasts—no-go areas by private enterprise—and if dereliction, misery, mass unhappiness and civil strife are to be avoided, Government intervention will be absolutely essential.The decision to support the De Lorean project was taken not only in the knowledge of the risk of possible failure, also having regard to the great benefits which success could bring to an area beset by acute political, social, economic and security difficulties.That statement appeared in Cmnd. 9374, the Government's response to the Committee. They added:The policy has, however, changed, and investment of this nature would not now be supported under present Government policy.The Government will eat those words before this Parliament is at an end. Indeed, they have already' had a few gobstoppers—decisions which must have stuck in their throat.
When the PAC used the wordsthe gravest misuse of public resources,everybody appreciated that it was an exaggeration. Over the years Governments have done much worse than that. One need go back only to 1962, when it was estimated that the production cost of Concorde would be £75.85 million. By 1979 the cost had reached £795 million—for a project which has never been a commercial proposition.
What of Ravenscraig and the fight by the Secretary of State for Scotland to keep it alive? It is not profitable. It is kept going on social and employment grounds. On 26 January 1983 the Select Committee on Trade and Industry questioned the then BSC chairman, Mr. MacGregor:Do you believe that likely present and future demand for steel from BSC could be met more efficiently by three or four integrated sites?He answered:Yes. Keeping five sites open, the cost is £100 million per year.That was for social and employment reasons. De Lorean was £77 million over four years. Thus, it is not necessary for anybody to explain to right hon. and hon. Members who have lived through such decisions that De Lorean was one of the gravest misuses of public resources. Governments are periodically forced into situations in which social needs and job considerations outweigh strict economic calculations, and the emphasis in the PAC report should have been much more balanced in that respect.
§ Mr. Michael Latham (Rutland and Melton)
In relation to the expressionthe gravest misuse of public resources,does the right hon. Gentleman not realise that a considerable amount of money was swindled?
§ Mr. Mason
Of course I do, but I am talking about the time when the agreement was being established. At that time we had to take into account the social considerations as well as the economic argument about whether we could manage to get as tight a master agreement as that to which the Chairman of the PAC referred.
In that sense, let us consider the PAC report and its examination of the De Lorean motor car project. The numerical strength of the PAC was 15 Members of Parliament. The Committee had nine sittings, and the average attendance at the Committee was six. Apart from one sitting, the highest attendances were for the two mainly drafting sittings, and then there were only 11, some of whom had not been present to question most witnesses. So much for the seriousness that they—the majority—attached to the subject.
279 As for their experience, especially of ministerial office, there were two former Under-Secretaries and the Chairman who had served as a junior Minister at the Treasury. The Chairman was Financial Secretary to the Treasury from 1975 to 1979. That was a most crucial time, because, before the De Lorean deal could be finalised and agreed by Government, the Treasury had to be won over or, by decree of ministerial majority, accept the final decision of the Economic and Industry Committee.
The Treasury had some reservations—expressed by the then Chief Secretary, now Lord Barnett—not in direct opposition but expressing doubts as to whether the economics of the project were open to serious question. However, the clear view of the Committee was that the De Lorean deal should go ahead, and on 26 July 1978, after a meeting at which 19 Ministers were present, I was given my instructions on how to proceed. Not one Minister and not one Department, including the Treasury, objected to my proceeding.
In the light of the PAC report—which was printed on 16 July 1984, six years after the deal was agreed by the Government in 1978—we must consider the background in terms of the situation in Northern Ireland and west Belfast at that time. Unemployment in the United Kingdom averaged 5.7 per cent. In Northern Ireland it was 11 per cent. In west Belfast, male unemployment was between 35 and 40 per cent. Youth unemployment stood at 50 per cent. It is a shocking and disgraceful indictment of the present Government to note that, while unemployment in the United Kingdom now averages 13.5 per cent., in Northern Ireland it averages 21 per cent.
Early in 1978 the Labour Government decided on a special policy for Northern Ireland. While there were always problems with security and continuing talks on constitutional change, something more positive had to be done at that time to alleviate the social distress caused by such high rates of unemployment. It was not just the awful social and economic scene—the ever-growing dole queues and soul-destroying despair as the Department of Commerce and the Northern Ireland Development Agency searched for jobs—but the frightening terrorist picture. That picture was one of terrorists in their ghettos of relative safety, of no-go areas for inward investment and of recruitment centres for the Provisional IRA and the Irish National Liberation Army, with thousands of young people constantly drawn into the clutches of those terrorist groups.
If the Government showed that they cared, that they recognised the awful severity of the problem, and produced a policy which would tackle the social evils of mass unemployment, they might also win those young people away from terrorism. In other words, if they cut off the terrorists' raw material, their supply of recruits, hopefully, by our deeds, we would be known and recognised.
The Cabinet agreed to my scheme to tackle this enormous problem by furnishing a new set of financial aids designed to attract investment in the Province. Whereas, in the assisted areas of Great Britain, 23 per cent. of cash grants was given to new developments for the purchase of land, the building of new factories and so on, in Northern Ireland I was allowed 40 per ent. for the whole of the 280 Province and 50 per cent. cash grants in the areas of highest unemployment, such as west Belfast. That is why De Lorean went there.
§ Mr. Robert Sheldon
I have had an opportunity to check the Members' attendance at four of the five sittings of the Committee. It was nine, 10, 10 and 12, and, as my right hon. Friend rightly says, attendance at deliberations was greater than that. He will be aware that the Financial Secretary to the Treasury is a member of the Committee who does not attend. There was one member who was ill almost throughout the proceedings and there was another who was waiting to transfer out of the Committee.
§ Mr. Mason
I am sorry that my right hon. Friend has started nit-picking on the numbers. I would not want to bore the House by reading out all the attendances, although I have a list here. Apart from one decimal point, there is no difference between what I have said and what my right hon. Friend has said.
Armed with these new financial aids granted by the Government, my right hon. Friend the Member for Mansfield (Mr. Concannon) and I bent all our efforts to sell Northern Ireland as a location for investment and industrial expansion. My right hon. Friend the Member for Mansfield did a sterling job; everyone in the Province will vouch for that.
In 1978 and 1979, we attracted seven American companies to Northern Ireland with job prospects for 4,100 people. De Lorean was one of them.The team of officials which negotiated the De Lorean project was responsible for the negotiation in 1978 and 1979 of 6 other new American Investments which are currently providing some 2,300 jobs (20% of all the existing jobs in US companies in Northern Ireland). Some of these companies have subsequently entered into expansion agreements.That, too, is a quotation from the Government's reply to the PAC, in Cmnd. 9374. If, therefore, the PAC intended any reflection on them, that reply partly answers the criticism.
The negotiations on the De Lorean project were hectic but detailed. Contact had been made long before 20 June 1978 when the Northern Ireland Development Agency and the Departments of Commerce, Finance and Manpower Services examined the Booz, Allen and Hamilton consultancy report on the De Lorean project. That had been prepared months before for Puerto Rico and the Irish Republic. The collective view of those Departments on 20 June 1978 was that it was a high-risk project but that we should make a pitch for it.
On 22 June, therefore, we made contact with De Lorean. Departments were now stating their positions. The Industrial Development Advisory Committee said that it was a high risk but a potentially rewarding project. The Northern Ireland Development Agency found in favour of the project. The Northern Ireland Department of Finance was prepared to agree in principle.
Meanwhile, a lurid set of articles on Northern Ireland and the troubles there was appearing in the New York Times, upsetting our potential investors and potential American employers on our other American projects. Therefore, we decided to convince them face to face. My right hon. Friend the Member for Mansfield and officials made the trip. On 23 June, the Cabinet Office was informed of the De Lorean prospect. We asked it to inform our ambassador in Washington and to tip off Senator 281 Kennedy and Tip O'Neill on the possibility and also asked that our ambassador be briefed to discuss it with the Prime Minister on his planned visit to Washington.
On 27 June, I was again in touch with the Chief Secretary. I promised him that I would try for more private investment before the Northern Ireland Development Agency's financial safety net was used. NIDA had devised a package to cover the possible gap in private investment just in case Oppenheimer, on behalf of the United States investors, failed to come up with sufficient private cash.
On 3 July, the Department of Commerce and the NIDA team went to Detroit to discuss the details of the corporate plan, and there were three days of talks. Then De Lorean came to Northern Ireland with the Booz, Allen consultants, and we had more discussions.
On 4 July. the Treasury informed me that approval would be considered only after discussion of the whole package. Therefore, on 6 July full details were sent to the Chief Secretary, the Cabinet Office and all the members of the NI Committee—the Special Cabinet Sub-Committee on Northern Ireland Affairs.
At this stage it is important to note that in this timetable the De Lorean company had already done all the work for Puerto Rico and the Republic of Ireland. It was a matter of reviewing the variables peculiar to the Province of Northern Ireland. We called in McKinsey, the independent consultants, to design the project. Then, on 11 July, a further letter was sent to the Chief Secretary bringing him up to date on all the details of the project.
On 17 July, in Northern Ireland, all the Departments concerned gathered together and the pros and cons were weighed again. The Department still approved, but concluded that at the end of the day this was primarily a political decision. NIDA, now realising that other Ministers were involved, urged me to use my best endeavours to secure a quick and favourable decision from the Cabinet Committee.
Evaluation and decision-making had thus been hectic since examining the Booz, Allen consultants' report on the project on 20 June 1978. There had been weeks of decision-making. NIDA had been fully engaged. A team of NIDA and Department of Commerce officials discussed the project in depth in the United States. There was in-depth discussion with De Lorean and his team in Northern Ireland. Top consultancy advice had been obtained and did not warn us off. We were told that it was risky, but we were not stopped. We had expert legal advice from the United States on countervailing duties. The Washington embassy was involved. All the necessary Whitehall Departments were kept in the picture. There was not one ministerial objection.
Furthermore, from not a single source had there been the slightest suggestion that the De Lorean team was suspect either as it stood or on the track record of its members. Indeed, General Motors encouraged De Lorean to come to Northern Ireland and advised the Americans to assist the project.
Then, later, Oppenheimer reported——
§ Mr. Concannon
It is right to point out that one of the reasons for De Lorean was this spin-off. It is also true that General Motors became interested in Northern Ireland through this and, of course successfully followed De Lorean to Northern Ireland.
§ Mr. Mason
That may be so in retrospect, but I am talking about that time. That is the point. At that time none was suspect—neither him nor any of his team—and that has not been proved either.
Oppenheimer reported that 19 documents and cheques had come in from 133 investors whom he had lined up. I was thus able to impart a bit of pleasing news to the Chief Secretary.
On 24 July a message came from the Prime Minister that the De Lorean project should now go to the Economic and Industry Committee before any further action was taken. Consequently, on 26 July the EIC met, with the then Secretary of State for Trade and Industry, Mr. Eric Varley, in the chair. There were 19 Ministers present—19 Departments had examined my paper and briefed their Ministers—and on that day, without one voice raised to stop my proceeding, I was given my instructions. I concluded the deal on 28 July and made the announcement on 3 August 1978.
The press reported one trade union official in Northern Ireland as saying thatthe factory would do more to destroy the IRA than deploying the entire British Army.Such was the feeling in the Province at that time.
That day the New York Times and Wall Street Journal carried definitive pronouncements that the De Lorean project was going to Puerto Rico—backing up De Lorean's view that he also had Puerto Rico in mind. Puerto Rico's business community was stunned at the news and threatened legal action against all of us, as my right hon. Friend the Member for Mansfield indicated earlier in an intervention. Thereafter, allaying the fears of the Chief Secretary, Oppenheimer's money started to come in: 120 investors each subscribed a minimum of $150,000 and later 206 dealers entered a sales agreement with De Lorean to purchase 26,350 cars over two years. Therefore. once the Puerto Rican proposition had gone, the Oppenheimer cash came into line.
I left office long before the factory was built. De Lorean received money from the then Government to which he was legally entitled. When I left the Province at the end of April 1979, only £17.7 million had been passed over to him. The vast bulk of the cash—apart from that which was promised and theoretically accepted—plus another two tranches of £14 million and £10 million in loans, were given to De Lorean by this Government. If the master agreement was weak, as suggested by the PAC, and the monitoring of the cash flow was not satisfactory, well, as the PAC said in paragraph 52:It is a matter of great concern to us that, on each occasion when Mr. De Lorean was seeking additional funds, no attempt was made to amend the master agreement to establish effective safeguards.Why then did not those Conservative Ministers get a grip on the situation? They had the opportunity to tighten financial control of the De Lorean enterprise, and also to slow down production in keeping with the market. I believe that De Lorean Motor Cars Ltd. could have been saved. The Conservative Administration were lax in their handling of the affair, and I am sorry for all those who lost their jobs and hope for a decent future as a result of that lackadaisical approach.
283 May I say to all the officials who were involved at that exacting and exciting time that it was worth doing; it was worth fighting for. They need have no sense of shame. They did a remarkably fine job and it cannot be taken away from them—or John De Lorean. I echo very firmly the PAC's view:We wish to record that those involved have a number of positive achievements to their credit, many of which reflect well on Northern Ireland as a location for new industry. They built a modern automobile plant on a green field site, developed and produced a new car of acceptable quality with labour new to the industry and using new methods for mass producing fibre glass body shells. They employed 2,600 people at peak production, and established a distribution network throughout the United States, all in 2½ years.By any standards, that was a major achievement.
Therefore, my right hon. Friend the Member for Mansfield and I regret that we had to leave before the factory was built and the product launched—and even before hardly any money was spent. But we are both of the opinion that, had we stayed on, with our keen interest in the project, allied with the political will to succeed, De Lorean motor cars would still be coming off that production line in west Belfast.
§ Mr. J. Enoch Powell (South Down)
The Northern Ireland contribution to the debate ought properly to have been made by my right hon. Friend the Member for Lagan Valley (Mr. Molyneaux), since the De Lorean factory was at all material times situated in his constituency, first as the Member for Antrim, South and now as the Member for Lagan Valley. The fact that it is invariably referred to as being in west Belfast is not without its significance in a context to which I will come in a moment. However, there is no need for me to convey the apologies of my right hon. Friend, especially—as I said yesterday—during an election campaign, since the Government have generously expressed their regret that no Northern Ireland Member was consulted before this matter was put down for debate today.
In one sense the debate is a churning up of the past, and the Minister is entitled to quote from the memorandum the specific statements of the Government that such a project and such a policy as this would not at present be entertained and lie outside the principles and guidelines which are now followed in the Northern Ireland Administration. In that sense it could be argued that the lesson has been learnt, but I am sure that the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), the Chairman of the Public Accounts Committee, would have been doing less than his duty if he had not obliged the House, upon this opportunity, to confront the misjudgment which occurred in 1978.
I apologise to the right hon. Member for Barnsley, Central (Mr. Mason), who has just made a remarkable political speech which revealed the sense of the speaker that he was on a defensive brief. It was well done, but those who read between the lines would come to the conclusion that there had in fact been a major error of judgment committed at the inception of the project.
What we have to account for is that Ministers, civil servants and Cabinets entertained a proposition which, upon the face of it, was positively hair-raising. They entered into an agreement which gave the authority and all 284 the money into the hands of someone who was committing nothing. They were confronted with a personality who, to the most ordinary psychologist, would have been recognisable as a manifest shark—something which has been amply borne out in the succeeding years.
Those of us who watched the events at the time could scarcely believe our ears when we heard the terms of the agreement and contemplated the individual and the boasts of the individual with whom the agreement had been made. So we still have something to learn from considering how it was that a misjudgment of that scale, with such disastrous consequences, was made.
The Public Accounts Committee is, in a sense, debarred by its terms of reference and procedure from placing its finger upon the essential cause of the disaster, for, in its own words,the Committee do not seek to question the merits of Government policy objectives".Unless Government policy objectives are questioned, and unless the analysis and the motives of the Government are questioned, we shall not be able to understand what happened. Certainly the memorandum was right in saying that it was essentially a political decision. Paragraph 3 of the memorandum says:The Government decided as a matter of policy that the potential economic and social benefits justified taking the risks".Or, perhaps more significantly, as the Public Accounts Committee quotes from McKinsey in paragraph 18:the political and image benefits to be derived from the DMC project would have to be very substantial".It was in the light of political and presentational or image considerations that Ministers and their advisers were prevailed upon to enter into an almost unimaginable contract which had foreseeable results.
I want to point to what, in my opinion, is the essential error in that political and presentational analysis. The word "image" in the sentence which I have just quoted is important, because what was done was done not only for results but for public consumption. It was done in the hope, no doubt, of its outcome. However, it was also done for show and to be shown off in certain directions.
The fundamental error is a wrong attribution of the relationship of cause and effect between violence and unemployment. This was highlighted by the right hon. Member for Barnsley, Central, who quoted a trade unionist who had said that an operation of this sort would help to "destroy the IRA." It is a total misunderstanding—a misunderstanding which is degrading in its character—to confuse terrorism with economic conditions, to suppose that nationalism and unemployment can be traded off one against the other, and from that to conclude that, somehow, one can buy out nationalism by offering economic advantages, or draw the teeth of the terrorists' pursuit of a political objective by investing in the areas from which they draw their strength.
It was that mistaken notion, that hysterical approach to Northern Ireland and its predicament, that created the frame of mind in which Ministers as sage and balanced as the right hon. Member for Barnsley, Central and the right hon. Member for Mansfield (Mr. Concannon) could, in good faith, make so grave a miscalculation as this. They have stressed the level of unemployment in Northern Ireland, but a high level of unemployment calls not for high risk but for more jobs. To state that unemployment is high in an area is not to justify the investment of money at greater risk than would have been judged wise in other 285 circumstances. Indeed, those are the very circumstances in which one ought to be especially sure that the investment will be realised in terms of jobs.
The level of unemployment is no justification for risk taking; but always it comes out in the phraseology that there was that other factor, the factor referred to by the usual periphrasis as "security"—the notion that if additional employment could be brought into west Belfast, that in itself would be a pacifying factor in the circumstances of Northern Ireland. In the end, we had neither. We had the consequences of a miscalculation in the temporary creation of about 2,000 jobs, the loss of those jobs and great dismay and discredit over a wide area; and we gained nothing in the direction in which it was hoped gains would be made.
I have stated what I believe to have been the root cause of this astonishing misjudgment. In order to complete that argument I would, strictly, need to replace the false picture with what I regard as the true analysis of the causes and nature of the situation in Northern Ireland. However, we are discussing in much more narrow terms the report of the Public Accounts Committee and the De Lorean fiasco. Therefore, I shall limit myself to saying that a political misjudgment was motivated less by consideration of the high level of unemployment than by consideration of the security situation, founded upon a profound and dangerous misconception of cause and effect in Northen Ireland.
§ Mr. Nicholas Winterton (Macclesfield)
I am very pleased to participate in this short debate. As has already been said, I have had a personal interest in the matter for some time.
May I congratulate, as other hon. Members have done, the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) on the very competent way in which he presented his Committee's report and its conclusions. May I also congratulate his Committee upon its conclusions, many of which now appear to have been accepted by the Government, albeit at a late stage. I regret that the terms of reference of his Committee did not allow it to go further than it was able to go.
I endorse the sentiments and views expressed by the right hon. Member for South Down (Mr. Powell) about this affair, but I was somewhat surprised by the speech of the right hon. Member for Barnsley, Central (Mr. Mason). He seemed to be trying entirely to jutify the actions for which he and his Government were responsible. In doing so, he endeavoured to unload the entire blame upon the incoming Conservative Government of June 1979. If the right hon. Gentleman had investigated the career of Mr. De Lorean from his youth to his General Motors days, he would have discovered that he was responsible for so many crooked deals that it would not have taken him long to come to the conclusion that he should not be backed, had there not been, as was pointed out by the right hon. Member for South Down, very important political implications in the decision which his Government were taking, since it was envisaged at that time that there might be a general election in the autumn of 1978 and that the provision of jobs in west Belfast might be of political advantage to the right hon. Gentleman and his Government.
§ Mr. Mason
It is absolute nonsense to think that in the autumn of 1978 or in the spring of 1979 we were thinking 286 in terms of a general election. We had been working on the plan to attract investment to Northern Ireland for the previous 12 months. Furthermore, the hon. Member for Macclesfield (Mr. Winterton) was involved in the character assassination of John De Lorean well after the deal was made. Prior to the deal being made with John De Lorean there was no evidence whatsoever of any bad dealing by that man. He had been the vice-president of General Motors for 17 years.
§ Mr. Winterton
I can only say to the right hon. Gentleman that he should consult some of the motor manufacturers and others who are involved in the motor industry, not least the editor of the Detroit News. I am sure that that gentleman, and others, would give him the kind of evidence that I have briefly outlined. As many hon. Members will be aware, I cannot be totally objective about this matter.
As a Member of Parliament, I was responsible for producing and bringing before the Government real evidence of abuse of public funds. I brought it to the attention of the present Prime Minister. Unfortunately, that information was ignored by the Government and their agencies for what I can only describe as political expediency. I make that indictment of the present Government, just as I indict the right hon. Member for Barnsley, Central for his lack of knowledge in doing a deal and jumping rather hastily into bed, metaphorically speaking, with John Zachary De Lorean.
I pay tribute to a colleague in the right hon. Gentleman's party, Mr. Bob Cryer, the then hon. Member for Keighley. Mention has already been made of my hon. Friend the then Member for Knutsford, now Lord BruceGardyne. Also, I pay tribute to my hon. Friend the Member for Wolverhampton, South-West (Mr. Buclgen), who in this House sought time and again to bring the Government to their senses in their dealings with John Zachary De Lorean but, sadly, all to no avail.
It is significant that when I gave my Government ample evidence of the abuse and misuse of public funds they refused to act. Initially, they set up a police inquiry and police officers came to see me in my home in Cheshire. I released to them documents that had been presented to me by John Zachary De Lorean's personal assistant, who is a British citizen. I did not consider myself an expert in these matters and, therefore, I handed the documents to the highest office in the land, through representatives of the fraud squad of the Metropolitan police.
The matter was taken even further because police officers were sent to the United States. They were about to meet one of the most vital witnesses, Mr. William Haddad, a senior executive of the De Lorean Corporation, when, for some extraordinary reason that has never been explained, they were summoned back to London to report. Mr. Haddad could have confirmed in considerable detail the outline of abuse contained in information that I had given and in the many papers revealing the lifestyle of John Zachary De Lorean.
I should say to the right hon. Member for Barnsley, Central (Mr. Mason) that the one person who took advantage of the Concorde programme, which the right hon. Gentleman ran down, was John Zachary De Lorean. He did not travel cheaply at the United Kingdom taxpayers' expense. He travelled by Concorde, and perhaps the right hon. Member for Barnsley, Central should have directed his attention to that fact in his lengthy 287 speech. Mr. De Lorean was supposed to be in charge of the company, yet he never spent a night in Belfast. He went into Belfast and flew out again as fast as he could. He spent British taxpayers' money as if it were confetti.
The right hon. Member should consider the evidence that has subsequently emerged about Mr. De Lorean's lifestyle—the pictures and works of art that he bought and the fact that cleaners in his Manhattan office complained that they could not do their work because of the clutter of expensive works of art and paintings that he had purchased in this country with British taxpayers' money.
If we want to get jobs into Northern Ireland, we must do business with people who are honourable. This man was certainly not honourable, as would have been revealed if his career and pedigree had been looked at in depth before the agreement was signed.
It is sad that I have to indict Governments with dishonesty and duplicity and that I have to indict individual Ministers with incompetence and, at best, apathy in dealing with this affair. Evidence was presented to the Prime Minister, and the Attorney-General was involved. I had a personal interview with my right hon. Friend the Prime Minister in her drawing room in Downing street. I wanted to take my solicitor with me—as a friend and not in an official capacity—but I was not permitted to do so. When I arrived at Downing street, I was faced not only by the Prime Minister, who clearly knew little about the matter, but by the Attorney-General and the Prime Minister's private secretary and her parliamentary private secretary. It was a lovely four to one situation.
When I put questions to the Attorney-General or to the Prime Minister, she referred them all to the Attorney-General and he replied as if he were some sort of dalek. He said that there was no evidence of criminal abuse. I had never said that there was. I had alleged that there was a massive abuse of public funds. That was my allegation.
I believe that my actions were justified and honourable when I brought matters to the attention of the holder of the most powerful office in this country. Parliament was not sitting and I was unable to use parliamentary privilege to raise matters, and subsequently I faced a suit for defamation from Mr. De Lorean and his company for $250 million, which at that time was the equivalent of £133 million. I was being sued for doing no more than my duty.
The right hon. Member for Barnsley, Central has tried to establish that what he did in respect of the agreement with Mr. De Lorean was his duty as a Minister trying to reduce unemployment. I accept that it is a Minister's duty to reduce unemployment, though I believe that what the right hon. Gentleman did with Mr. De Lorean was wrong, and I hope that the right hon. Gentleman will agree that I acted correctly when I was given evidence which I believed merited further investigation by those who had the expertise to deal with it.
I acted confidentially. I was subsequently identified by Miss Marion Gibson, who was a member of Mr. De Lorean's personal staff, to a journalist in America. Therefore, I was obviously pressed to make some comment to the media in this country. The right hon. Member for Barnsley, Central sought to justify his actions, and I hope that he will agree that my actions were both correct and honourable.
288 Where were the Government in supporting an hon. Member who had revealed what the PAC calls a "massive" abuse of public funds? Did they want to know me? Were they prepared to assist me? The answer is no. Governments in this country are on trial for the way in which they are prepared to deal with people who seek to help them.
I have nothing to lose in this matter. As many hon. Members know, the action by Mr. De Lorean and his company against me was struck out. In front of a master in the High Court, I was awarded £15,000 for defamation against Mr. De Lorean who had made some unjustified remarks about me. I am glad that the right hon. Member for Barnsley, Central is nodding in agreement. I will not see a penny of that £15,000 because of Mr. De Lorean's superficial insolvency, though it is interesting to see that he was released—on a technicality, in my view, because of the blunderbuss tactics of the FBI—during his drug trafficking court case. In every way, in my view, he was absolutely guilty and was trying to get money to buy himself out of trouble, which was typical of what he had done all his life.
I was faced with massive legal fees and the Government did not want to know. I am convinced that if I had lost there would have been a number of smiling faces in the Cabinet. They would have said, "One inconvenient nuisance out of the way." That is not the way for a Government to act. They were dishonourable in disowning a colleague who had done a service to this country. I am not being immodest about what I did, because I did what I believed to be right.
The Attorney-General did not want to know. He kept replying to my questions by saying that there was no evidence of any criminal misuse of public funds. I had never made that allegation. The PAC said:While we consider that the De Lorean plans were impracticable from the start, it has been argued by both Sir Kenneth Cork and McKinsey that a less ambitious operation aimed at producing under 10,000 cars a year, mounted with an eye for strict economy"—clearly the right hon. Member for Barnsley, Central would not agree with that—and without the massive misappropriation of funds which took place, might have succeeded".That is what I said six months before the receiver was called in, but the Government took no action and did not want to know. Indeed, I believe that more funds were advanced to the company before it went bust.
The report continues with the passage quoted by the right hon. Member for Ashton-under-Lyne:The blame for this lies principally with Mr. De Lorean personally, but hardly any of those who dealt with him on behalf of the British taxpayer at a high level can escape substantial blame or criticism for their failure to prevent a major waste of public money.How did Mr. De Lorean spend all that money and why was no action taken? I hope that my hon. Friend the Minister will tell us how many people, if any—and who they were—lost their jobs as a result of the incompetence and the squandering of taxpayers' money involved in the De Lorean affair.
I could tell the House many things about this case, but unfortunately it would do nothing for the image of Parliament. Mr. De Lorean was clearly concerned only with his own image in reaching a deal with the British Government. I am sad that certain of my right hon. and hon. Friends who served as Ministers in Northern Ireland—for instance, my hon. Friend the then Minister of 289 State, now Minister of State for Defence Procurement, did not come clean about this. Mr. De Lorean browbeat the then Minister of State with telephone calls urging him to "stop that man in London saying those things." Ministers must have known what was going on. It is a pity that they were not prepared to act or to take a parliamentary colleague into their confidence and say, "We cannot say this publicly, but we assure you that we are taking action and that these matters are being investigated." The Government stand rightly indicted for apathy, incompetence and wasting public money, although I am a little reassured by the fact that certain new criteria have been laid down by the Government to try to prevent a recurrence of this kind of abuse.
I have one further question for my hon. Friend the Minister to answer when he replies to the debate, as this information was not given by the right hon. Member for Barnsley, Central. I should like to know just how much finance Mr. De Lorean put up front. He was supposed to put up a substantial amount. The right hon. Member for Barnsley, Central referred to some 120 investors from America, mainly from New York, but how much of that money was ever actually put up? I do not believe that Mr. De Lorean put up more than about $750,000 himself, although he should have put up 10 times that amount to match the money provided by the British Government.
The House should be ashamed of Government for what Government have done with taxpayers' money. I pay tribute to the right hon. Member for Ashton-under-Lyne and to members of the Committee for the extremely hard and detailed work that they put into producing the report. I only wish that the baseline for what they were able to do had allowed them to make deeper, more relevant inquiries as to why this occurred and who was to blame so that action could be taken against those responsible for one of the most flagrant and massive abuses of public funds. The right hon. Member for Barnsley, Central talked about bringing jobs to Northern Ireland, but I bet that the basis of any agreement with any of the other companies was not that agreed with John Zachary De Lorean, who is about to make about $1,500,000 from sales of his memoirs.
I tell Mr. De Lorean from this Chamber that if he ever sets foot on the shores of the United Kingdom a writ will be slapped on him for the money that he owes me.
§ Mr. Winterton
I am grateful for the support of my hon. Friend, who served on the Committee and played a major part in its inquiries.
I hope that the Government will give an assurance that if Mr. De Lorean ever sets foot in this country he will be arrested and that any assets that can be taken by the Government will be taken. It is possible that his book will be brought out in this country. That may help to repay some of the debts that this man owes not only here but in America and in many other parts of the world. Am I to have the assurance that the Government will have him arrested and take any resources that they can take from him? I believe that assurances to that effect will allay some of the fears of the people of this country who feel desperately let down because money has been poured down the drain.
The right hon. Member for Barnsley, Central should be aware that I am extremely sorry for the people who expected long-term employment rather than employment 290 merely while it suited Mr. De Lorean, who always intended to walk away from the project. I am sorry for the work force of 2,600 in west Belfast and elsewhere. Those people were let down, and the taxpayers of this country were also let down, but those responsible have remained completely unpunished and it is time that they received their just desserts.
§ Mr. William O'Brien (Normanton)
The hon. Member for Macclesfield (Mr. Winterton) has asked the Government for an assurance that if Mr. De Lorean sets foot in this country he will be arrested. Having listened to the hon. Gentleman's speech, I believe that some members of the Government, including the Prime Minister, should also be arrested, in view of the way in which they ignored the hon. Gentleman's advice and his requests for action to be taken against De Lorean. The hon. Gentleman should pursue the matter further, because if his comments are justified those people should certainly be arrested.
If the comments of the right hon. Member for South Down (Mr. Powell) in reply to my right hon. Friend the Member for Barnsley, Central (Mr. Mason) about there being no justification for entertaining an enterprise of this kind in Northern Ireland are correct, perhaps he will tell us where that is recorded in the Official Report before the transaction got under way and the main contracts were signed. One would expect a Member of Parliament with the experience of the right hon. Member for South Down to have made his views known before the event, rather than merely criticising it afterwards.
My right hon. Friend the Member for Barnsley, Central tried to explain his position. As a member of the Public Accounts Committee, and even in local government, one of my main objectives has been to find ways of saving public money, and I hope to continue that in the House. There are lessons to be learnt from the investigations that have been carried out. The fact that the Government have accepted the main recommendations in the report gives some satisfaction to members of the Committee, who spent many hours asking questions, reading documents and producing the report. That acceptance is pleasing to note and it is some reward for the work done.
The De Lorean affair is a matter of great interest because of the amount of money involved and the way in which it was spent. It is clear from the volumes of evidence that we obtained that when the matter was first considered it was with the good intention of trying to reduce the alarming rate of unemployment in west Belfast, which was running at twice the national average. The way in which the project was presented to Ministers and officials at the time suggested that it provided a real opportunity to create jobs by building a type of sports car which, it was said, was in demand at that time.
The negotiations took 45 days. There is no doubt that, following them, De Lorean walked away with the deal of a lifetime. It was what he wanted—it was more than he expected to achieve. It was more money than anyone offered out of Puerto Rico or Ireland. He created new hope of employment for the people of Northern Ireland. My colleagues can explain better than I that people had grown up, married and had children without ever having held a job. The possibility of a motor car factory in Northern Ireland gave new hope and the possibility of a new way of life to those people. They thought that they would be able to buy things which they had never been able to 291 afford. Their social life changed. They were able to go out with the family and to afford holidays—something that had never happened before. There was a genuine belief that a motor car factory would be developed in Northern Ireland.
The evidence makes it clear that soon after the scheme had been put forward the gratitude of De Lorean evaporated. I understand that he made scathing remarks about the British Government and officials in Northern Ireland. His interest waned. On more than one occasion he said that the British Government would receive only the information that he wanted them to receive. He could not care less about the work force in Northern Ireland.
It is obvious from the evidence that he was advised of the difficulties with some of the monthly and long-term budgets, but his attitude was "If we have overspent the budget, adjust it." There was a total disregard of warnings. We have been told that he spent the money given to him by the British Government on high-class furnishings, works of art, Mercedes cars and his private business ventures. There were people on his payroll who were not actually employed in the industry. The evidence shows that that character was not interested in the developments in Northern Ireland—he wanted to develop a lifestyle which was open to many questions.
There was a genuine attempt to reduce the number of people out of work in Belfast. I understand that to begin with 600 people were taken on, and it was believed that one year later that figure would rise to 1,000 and two years later to 1,500, with a proposal to increase the labour force even further as time passed. The evidence shows that the increase in production meant a surplus of cars. Indeed, the quality of the cars left a great deal to be desired.
There is also the question of the "walkabout" £10 million paid to Lotus. It is possible that that amount was paid twice. No one can trace where that payment went. Press reports say that De Lorean claimed that he was swindled by Mr. Chapman of $17.65 million. That can never be proved, but De Lorean sticks to the argument that he was conned. We must consider that very carefully.
§ Mr. Latham
We must get the matter fairly on the record, because the hon. Gentleman may have slipped up in the way that he presented it. Wherever that $17.65 million went, it was not to Lotus.
§ Mr. O'Brien
De Lorean claims that he paid twice that amount. We can never prove that. The report states that there was an approach to Lotus from De Lorean and that its services were secured. It is against that background that De Lorean claims that payment for the services of Lotus was made twice. That will never be proved.
The contract for $5.15 million with GPD was open ended. There are many questions to be answered, as it was a major transaction with no real contract. I hope that the Government will note that. The accountants studied the matter in detail and their conclusions are listed in the report. I hope that that will influence any further contracts into which the Government may enter.
There is a question about the future troubles of De Lorean. The Government must pursue the claim for $17 million. It is said that this sum has been repaid, but a great deal more has yet to be recovered. I hope that the further repayment will be pursued by the Government. I hope also 292 that the PAC's observations will be in the Government's mind constantly and that every effort will be made to ensure that problems of a similar nature do not recur.
The British Government had two nominee directors on the De Lorean board and it is vital to lay down the duties of nominated directors. As the Minister said, if a nominated director cannot report back to the Government, he should resign. We questioned the directors on the procedures that were implemented when board meetings took place. We were advised that De Lorean called meetings at short notice and that on occasions relevant information was put into the hands of directors only as they arrived for the meetings. Reports were made available at short notice and board members did not have the opportunity to discuss them. They did not have the opportunity properly to make representations.
We questioned the directors on the nature of the reports that were prepared by the company and on the minutes that were produced. We were advised that the reports and minutes were brief and included little detail. In other words, there were inadequate reports of board meetings. I remind the House that John De Lorean said that he would allow the Government to have only the information that he wanted to let them have. That suggests that he was not prepared to supply the Government with proper information.
We must take cognisance of the way in which minutes of meetings and agendas were produced and submitted. If the Government are to place nominee directors on boards, there must be an awareness of the procedures that will apply and the way in which they will be implemented. If the procedures are not in keeping with good practice, we should be informed and we should take steps to ensure that the problems that accompanied the De Lorean project do not recur.
The report highlights deficiencies in contract arrangements, in negotiations and in the examination of those who would be involved in commercial transactions. It is encouraging to know that the Government are prepared to accept the Committee's recommendations, in the hope that we shall not be faced with similar problems. Of course, this is not the first PAC report to be accepted by the Government. The Committee's reports have helped to develop a better understanding of the way in which public money should be spent.
I hope that the De Lorean experience will not lead the Government to deny further investment in regions of the United Kingdom where there is high unemployment. There must be public investment. I hope that the Minister will give an assurance that the Government will include the areas of high unemployment in the north of England in a programme of public investment to help to reduce unemployment. The De Lorean experience should not influence them to restrict or deny further public investment.
§ Sir Michael Shaw (Scarborough)
I shall speak only briefly, in view of the time. I agree with the hon. Member for Normanton (Mr. O'Brien) that we should not seek to deter proper investment to give assistance to the areas which need it most, especially those with long-term unemployment. Investment is one of the solutions to that problem. However, money that is spent unwisely is money that is not available for the very wise investment that the hon. Gentleman seeks. It is essential that money that is put 293 aside for investment is seen to be used properly and for the long-term advantage of the nation. That must be one of our continuing concerns when examining these matters.
I add my congratulations to those which have already been offered to the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), the Chairman of the Public Accounts Committee. The report is one of the most important that the Committee has produced for many years. There is some real meat in it, which should be eaten and digested by Governments of all complexions. That applies especially to the sections of the report relating to nominee directors. Too often in the past such nominations have been made as sinecures for those who have done good service or as a sop to public opinion. On occasions it has been said, "Do not worry. We have a couple of nominee directors on the board, so everything must be all right." Nominee directors carry a grave responsibility, and the Committee is continuing to address itself to their role.
I do not believe that the Committee tackled its task lightly, and nor did we deal with it superficially. The right hon. Member for Ashton-under-Lyne referred somewhat derisorily to the part of the report which suggests that the De Lorean project was one of the gravest examples of the misuse of public resources to appear before us for many years. Perhaps his derision was directed to those who allowed it to take that course. I consider the suggestion that the project was one of the gravest examples of the misuse of public money to be absolutely true.
Bearing in mind the time, I shall confine myself to one issue only. It has rightly been said that the Committee does not deal with political decisions. The Committee examined the facts as far as it was able to do so, but any debate in the Chamber must embrace the consequences of the report and their effect on Government action.
The original decision to establish De Lorean in Northern Ireland was taken after consultation with various people, including the Industries Development Advisory Committee. The Comittee was consulted, and it was told that because of the shortage of time there would have to be a political decision. In other words, it was thought that the Committee should not pronounce upon it. Mr. Bloomfield was the permanent secretary at the time of the Committee's inquiry but not at the time of the events with which we were concerned. When I was questioning him on these matters, he said:They said essentially"—that is, IDAC—'You tell us that you are going to have to make a judgment about this within a very limited timescale. It really is going to be difficult, almost impossible, to thoroughly appraise this as a commercial proposition in that time scale.'Mr. Bloomfield was paraphrasing what the IDAC had been saying. He continued:Therefore there is really nothing useful we can say to you.Mr. Bloomfield is there referring to the Government. He added:'It is going to have to be in essence a political decision as to whether you accept these risks or not.' That was the status of the IDAC involvement.No commercial disciplines were set within which the Government could make a decision. Of course, there was the McKinsey report. McKinsey was working on the scene at the time, and was asked to produce a quick report. But it is notable that in one report, McKinsey said:Six days is clearly inadequate for a serious evaluation of a major investment.I criticise McKinsey for the fact that it simply pointed out four main risks. It admitted that during the time available 294 it could not evaluate those risks. The company proved to be exactly right about those four areas, but the size of the risks was not known because there was no time to examine them in detail.
I fully understand the great difficulties and pressures faced by Mr. Bloomfield and by the right hon. Members for Barnsley, Central (Mr. Mason) and for Mansfield (Mr. Concannon). However, if money is to be well spent, harsh though it may be, decisions must be taken within the commercial discipline laid down at the time.
§ Mr. Concannon
Would the hon. Gentleman care to reflect on other Select Committee reports, notably one from the Select Committee on Trade and Industry? Many other decisions made in Northern Ireland at the same time have been extremely beneficial to the Province.
§ Sir Michael Shaw
I do not have in front of me any documents to show the parameters of the risks involved and the commercial judgments which formed the basis of advice given to the Government at the time, so I am afraid that I cannot. I am now looking to the future. The main purpose of the Committee's inquiry was to find out how to do things better in the future. The £77 million that we wasted on that venture was not available for another venture which might have been of long-term benefit to the Province.
One of the most important points made by McKinsey was that we should not be rushed into a decision. Anyone connected with business will know that the best way to get someone to do what one wants him to do is to rush him. Do not give him time to think. Say things like, "Someone else wants the job and this is your only chance." It is the commonest sales trick in the world and, whatever the motive, we should not have fallen for it, especially as we were using public money. As the right hon. Member for South Down (Mr. Powell) said, we must also assess the man. The wrong assessment was undoubtedly made in this case.
After a decision is taken, there should be a clear understanding of how the project should progress. If things go wrong, we must be prepared to turn off the taps as quickly as possible. It is easy to be jollied along for years with people saying, "Just give me a little bit more to keep it going."
I could have said many things about this matter, but I wished to emphasise those points strongly this evening.
§ Mr. George Park (Coventry, North-East)
It was inevitable and right that the Public Accounts Committee should investigate what has been described several times today asone of the gravest cases of the misuse of public resources to come before us for many years.But, given the circumstances, it was essentially a stirring of dead ashes, with the added ingredient of Northern Ireland, which in addition to all its other troubles has the highest unemployment in the United Kingdom
Ministers and officials, who may be discomfited by the stringency of the 25th report and by the fact that the PAC has the benefit of hindsight, clearly approached the De Lorean project as they would a normal project, but John De Lorean is not a normal person, and the circumstances in Northern Ireland are not normal. They were led like lambs to the slaughter. It did not help the unemployed to have public money intended for their assistance siphoned 295 off by a con man He immediately put officials of the Department of Commerce under pressure by requiring decisions in principle in just more than a fortnight, on the basis that offers of assistance from other places had already been made. He omitted to mention that the Republic of Ireland had already withdrawn its offer, and that he was in difficulties with the offers from Puerto Rico, Detroit and elsewhere.
The project was outlined on 8 June 1978. By 29 June a joint team from the Department of Commerce and the Northern Ireland Development Agency had visited Detroit to make further inquiries and to be impressed by a stage-managed presentation. But the team made no inquiries of American banks, financial institutions or automobile companies about the De Lorean project.
§ Mr. Concannon
That is simply not true. Many inquiries were made. I must stress that during all those inquiries of individuals and institutions not a wrong word was said about De Lorean. I can assure my hon. Friend that I looked in some strange places.
§ Mr. Park
I respect my right hon. Friend's sincerity, but I should tell him from my experience of 25 years in the motor industry that no one would have told him anything detrimental to De Lorean, because they wanted shot of him. I am afraid that my right hon. Friend was hoodwinked. I am not here to pick holes in former Ministers or officials. They approached the matter normally, as though it were a normal project. However, as the PAC went through the mountains of evidence, it became clear that it was a completely abnormal position, revolving around an abnormal man.
The Department of Commerce commissioned McKinsey to assess the risks, but then accepted the assurances of De Lorean rather than the McKinsey report, which had put its finger on most of the main weaknesses of the project, especially the fact that it depended largely on one man—John De Lorean. That was the fatal flaw in the scheme. Under his sustained pressure, it had taken only 45 days to reach an agreement which required little or no financial commitment from him and an initial £54 million, later £77 million, from the Government in grants, equity and loans.
The PAC report states:the prospect of creating large-scale employment in West Belfast proved so irresistible to DOC as to diminish its sensitivity to the commercial risks involved".Even then the project might have become viable, because in five months the factory had been completed and equipped and production started. However, despite its long gestation period in the United States, further research and development were needed. This was to be done by Lotus Cars, through a Swiss company, GPD, for a fee of £6.25 million, approximately. Additionally, De Lorean Motors paid GDP/Lotus a further £11.5 million for alleged development work, and that was paid in advance. Subsequently, it was found that none of the initial sums paid to GDP had been received by Lotus.
Through his team and the co-operation of the work force in west Belfast, De Lorean had kept to the promises made to the Government about the start-up of the project and the employment of labour. That was no mean achievement, but it could not sustain the financial needs of John De Lorean himself or the high salaries of his basic 296 team. The whole thing was expanded well beyond its capabilities. At the same time, officials of NIDA and nominee directors were finding increasing difficulty in pinning down De Lorean on either information or his various financial transactions.
The PAC has not finally completed its report on the De Lorean saga. Loose ends remain which I doubt will ever be tied up. The lessons to be learnt are that officials must always insist on technical assistance in areas outside their competence when in negotiation, that financial agreements must be tightly drawn and that monitoring in cases where assistance has been given must be strictly maintained. There must be further clarification of the role of nominee directors.
As in the case of De Lorean, charisma must not be allowed to blind officials or Ministers to the hard financial realities. I am pleased to note that the recommendations made by the PAC have been accepted by the Minister, but, as has been said, I would not Want the De Lorean experience to deter further Government investment to ease the problem of unemployment.
§ Mr. Michael Latham (Rutland and Melton)
The main problem in dealing with the De Lorean scandal is the vast amount of material that is available. Some of the world's most determined and expert financial wizards are still pursuing the missing millions that went walkabout. The PAC report is full of essential detail. I shall concentrate on five basic questions. First, should the project ever have been allowed to go ahead? Secondly, could it have been stopped? Thirdly, did the Government-appointed directors do their job? Fourthly, was GPD a rip-off? Fifthly, who was to blame?
First, should the project have been given the go-ahead? As has been said several times, we can all understand the humane motivation of Ministers in 1978. A charismatic superstar rode out of the west offering 2,000 jobs in one of the worst unemployment areas in Europe, which was also plagued with terrorism. We now know that he was not adequately checked out personally. We know that Northern Ireland was his fourth choice. Indeed, that was also known at the time. He hustled the Department into much too quick a decision. The Government's own business watchdog, the Industries Development Advisory Committee, washed its hands of the matter, and turned the decision over to the politicians.
The McKinsey report, commissioned by the Government, sounded a grave warning. Sir Lindsay Ring, a member of the NIDA board, told NIDA at the time that it had neither the time nor the information to decide whether the project would work. The master agreement was much too generous to De Lorean; it allowed the New York company to call the shots from the start. There was no independent engineering approval.
In that regard, it is worth contrasting the tone of what Ministers said to the House at the time with what witnesses told the PAC. For example, the then Under-Secretary of State for Industry, Mr. Les Huckfield, told the House on 14 February 1979 that the Secretary of State for Northern Ireland had kept the Secretary of State for Industryinformed at all stages and consulted my Department as appropriate."—[Official Report, 14 February 1979; Vol. 962, c. 564.]On 5 March, the right hon. Member for Mansfield (Mr. Concannon) repeated: 297The Department of Industry was fully consulted … detailed technical assessment of vehicle prototypes was not considered to be a necessary requirement".—[Official Report, 5 March 1979; Vol. 963, c. 587.]Both, of course, were saying what they had been perfectly properly advised.
On 23 November 1983, Mr. Ken Bloomfield, the permanent secretary, told the Select Committee that the Department of Industry had not offered any assistance with an engineering evaluation, that it had not been asked for it and that it probably would not have been able to provide one anyway without calling in outside experts, for which there was no time. The project should never have been allowed to go ahead on that basis. We all know that to be true, and it is implicitly accepted in the second lot of replies from the Northern Ireland Office to the Committee a few months ago.
My second question is: should the project have been stopped or the master agreement renegotiated during the work? It could have been killed off by the incoming Conservative Government. Mr. Jock Bruce-Gardyne, then the hon. Member for Knutsford, asked about that in the House on 26 July 1979. My hon. Friend the Member for Pudsey (Mr. Shaw), who was then Under-Secretary of State, Northern Ireland Office, replied that the Government hadmade clear their intention to continue to support the De Lorean project, and there is no question of terminating their contracts with the company."—[Official Report, 26 July 1979; Vol. 971, c. 436.]However, nothing happened after the meeting on 27 September 1979 between NIDA, Mr. De Lorean and Mr. Cafiero, at which Mr. Faulkner and Mr. Hopkins of NIDA were very critical of the financial control of the company and of the extravagance in New York. Nothing happened after the highly critical NIDA board meeting of 19 December 1979, except that it took the chairman, Mr. Faulkner, a month to write another highly critical letter to Mr. De Lorean. Nothing happened after 27 June 1980, when Mr. Hopkins of NIDA telexed Mr. De Lorean telling him that the company must live within its means.
The following month Mr. Hopkins even temporarily cut off the funds, and in the summer of 1980 directors of De Lorean Motor Cars Ltd took legal advice to see whether they could legally continue to trade because Government finance had been temporarily held back. By that stage Mr. Hopkins himself, the chief executive of NIDA, and a member of the De Lorean board, had come to the conclusion, which is in the report, that the nominee directors were powerless, that the master agreement must be renegotiated and that that could be done only the next time De Lorean asked the Government for more money.
On 28 July 1980 Mr. De Lorean restructured the DMC board in New York and put his wife on it without telling the nominee directors. He then bypassed NIDA and got another £14 million out of the Secretary of State without the master agreement being renegotiated and without NIDA being present at the meeting on 5 August, despite, a specific request by Mr. Hopkins that he should attend. In my view, that was the crucial opportunity—which was, alas, missed—to rein back the project. After that it was all downhill, with more good money being thrown after bad throughout 1981 until the final debacle of early 1982. It could have been stopped. The agreement could have been renegotiated. For perfectly honourable reasons it was not, because of the existing financial commitments, 298 and the wish to preserve jobs and prevent more disorder in Northern Ireland. The opportunity was there, and it was not taken.
Thirdly, did the nominee directors fail in their duties? The answer is clearly yes, and it is both implicit and explicit in their testimony and in the report. None of them resigned despite their continuing dissatisfaction with the way in which Mr. De Lorean treated them or his contemptuous response to their pleas for more economy or better financial control. They come badly out of the PAC inquiry, and none of them should ever be used by the Government in such a capacity again.
Fourthly, can there be any honourable explanation of the GPD affair? I fear that it was a deliberate rip-off from the start. There is no other credible explanation. A few facts are clear. Mr. De Lorean and the late Mr. Cowin Chapman already knew each other and they did not need Mr. and Mrs. Juhan, trading as GPD, to bring them together. Indeed, De Lorean had previously discussed buying Lotus with British taxpayers' money. The ostensible reason for the GPD arrangement was to distance Lotus from possible American liability and warranty claims and to protect it from the new Conservative Government cancelling the De Lorean project. The agreement was worked out in Geneva in November 1978 by De Lorean and Chapman. The DMC board was told that the agreement was to deliver the services of Chapman and that he wanted it that way. In fact, it illegally delivered $17.65 million of American investors' and British taxpayers' money. None of it went to Lotus.
Since Lotus was not paid twice for the work that it did on the car, regrettably it must by said that Colin Chapman could not have told the truth to the receiver, Sir Kenneth Cork, in November 1982 when he denied all knowledge of the $17.65 million. He said that he knew nothing about it, and even that he never saw the GPD contract. I have no doubt that Chapman helped to draw up that contract in Geneva in November 1978.
The money did not go to Lotus as a firm, which is not to be blamed, but it certainly went somewhere. Both De Lorean and Chapman have concealed the truth, and the memorandum which Chapman prepared for the PAC before his death—it appears in volume 2 of the report—is less than frank and contains obvious untruths.
Some people have argued that De Lorean conned Chapman. Others, such as The Mail on Sunday, suggest that Chapman conned De Lorean. The truth is best put in the book to which the the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) referred, which said:In our research on this book, we have found those close to Chapman believed that De Lorean had it all and that those close to De Lorean believed that Chapman spirited it away. That one or both of them did so is almost beyond doubt.The explanation that is, alas, most likely is that the entire deal was a con on the investors and the British taxpayer.
Whatever the truth, some words accurately describe the outcome of the GPD transaction. The Committee's report uses the word "mispropriation." The alternative words for plain folk would be "swindle" or "theft." It must have seemed the perfect sting. It deceived NIDA, the Department and everyone else.
To our shock, we now know that De Lorean talked his board into a snap decision to approve the arrangement in advance and that NIDA's chairman and chief executive agreed after a cursory discussion the following day. A perfect sting indeed, which might never have been 299 discovered if De Lorean's empire had not foundered. No one chose to ask why Lotus was being paid month by month for work in respect of which it had already been pledged $17 million under contract. The marks for that sting were all our constituents and the American investors.
Who is to blame? After the Committee's report appeared, it was well received by all except two media experts. Ivan Fallon wrote a brilliant book on the whole squalid mess. That was available and invaluable to the Committee. Jock Bruce-Gardyne, now in another place, regularly questioned Ministers about De Lorean when he was in this House. Lord Bruce-Gardyne has always believed that the PAC was an unsuitable vehicle for the inquiry and that a special Select Committee should have been set up to question former Ministers or those still serving at the time when the company failed. He and Ivan Fallon believed that, because both Labour and Conservative Governments were involved, the House would be reluctant to take the matter further.
There is truth in such criticisms. I doubt whether any other committee could have done the job more thoroughly. The PAC has the inestimable benefit of the full backing of the Comptroller and Auditor General and his staff. No one has disputed the thoroughness of the report and Mr. Fallon himself was kind about it in his articles.
When the report appeared I was distressed by some of the cynical letters that I received saying that nothing would change. For example, a business man in Bournemouth—one of 2,000 unsecured creditors—who lost £6,000 through his firm, said that Whitehall never ran short of whitewash and that our labours on the PAC would be in vain.
I drew such letters to the Prime Minister's attention. She said that the affair was taken most seriously by the Government. In a letter to me, my right hon. Friend said:Every effort will continue to be made to recover funds due to creditors and to bring to book anyone who may have committed a criminal offence.
§ Mr. Nicholas Winterton
In that case, when I saw the Prime Minister and revealed two folders of documents in 1981, why was no action taken? Both the Prime Minister and the Attorney-General stated to me subsequently, when the inquiry was called off—for reasons for which I have no explanation—that there was no evidence whatsoever to indicate that there had been criminal abuse of public funds. How could the Prime Minister write that letter when she had evidence upon which the Government could have acted in the early autumn of 1981?
§ Mr. Latham
To be fair to my right hon. Friend the Prime Minister, the letter to me was written last summer, and my hon. Friend the Member for Macclesfield (Mr. Winterton) refers to what took place in 1981. I cannot speak for the Prime Minister, but the explanation appears in the book which is available to anyone who wants to read it.
Although the tone of the Prime Minister's letter to me was good, she told me in two parliamentary answers on 30 October 1984 that no public officials had been reprimanded, retired on grounds of limited efficiency or otherwise disciplined as a result of the De Lorean affair. She said that two of the officials closely involved in the 300 monitoring of De Lorean between 1978 and 1982 still had responsibilities for approving finance for industrial projects.
I do not really blame Ministers. None of the Secretaries of State involved is still in office. They were all honourable men who believed that the project would provide jobs and hope. They fought to start the project and they fought to save it. That was a decent and honourable reaction. We would all have done the same in their place.
However, Ministers must constitutionally accept the blame for the serious failures of their officials and the totally unsatisfactory monitoring and control arrangements. The current chief executive of the Industrial Development Board for Northern Ireland, Mr. Saxon Tate, spoke to the Committee about laxity within the organisation which he now runs but with which he was not then involved.
In my view, NIDA's role and that of the nominee directors represents a long and dismal chronicle of negligence and incompetence which was not checked by the Department of Commerce or by this House. Mr. Tate confirmed to me that no heads have rolled, and I do not expect now that any will.
About £70 million has been lost, much of which is beyond recall. More than 2,000 United Kingdom workers lost their jobs, an area which had some hope of work lost that hope, and many creditors have lost their money. It has been a sad, bad story of greed, fraud, incompetence, laxity and neglect. It is all revealed in stark and depressing detail in the report. The duty of the House is to insist that all Governments never allow it to happen again.
§ Mr. Michael Morris (Northampton, South)
I am pleased that the Government have accepted the PAC's recommendations. I have been deeply involved in the inquiry, and the Committee has had to wade through as much evidence as any other Committee has ever had to consider.
Since producing our report, I have reflected on the implications for the future. Four additional implications have not been highlighted in the debate, although one has been mentioned. The first is that I believe that it is unacceptable for the Public Accounts Committee to be delayed in carrying out an inquiry into the misappropriation of Government money because a judicial or police inquiry is taking place.
§ Mr. Morris
The Committee was delayed for over 12 months. I objected to the delay in the Committee at the time to the then Chairman, but I was overruled. The delay was unfortunate. I hope that never again will the PAC be prevented from investigating the misappropriation of public funds because a law case is pending.
Secondly, there is the question of time. I remain mystified why the Secretary of State for Northern Ireland was given only 16 days in which to reach a decision. It seems to me that the Government failed properly to search the world for footloose investment. We should have known what was happening with Puerto Rico and Detroit. Inquiries should be made of the Invest in Britain Bureau to ensure that our investigation of footloose investment throughout the world is as good as possible. Our Ministers should never again have to make a decision in just 16 days. 301 Thirdly, I feel that Ministers and their advisers were not well assisted by the professional advisers who were called in. We have heard quotations from the McKinsey report which show that the initial summary was blunt and forthright:In summary, the Department is being asked to fund an extraordinarily risky venture. The combination of DOC grants and NIDA equity investment will mean that a large proportion of the financial risks will be carried by the UK taxpayer in return for a 22 per cent. stake in the company, if it can succeed in overcoming the odds.Document PAC 8, therefore, contains a pretty strong report. However, as one looks at the work of McKinsey over succeeding months, one is disappointed to find that the firm's analysis became less critical.
In 1980 McKinsey was asked to assess whether the company was adhering to the terms of the master agreement of August 1978. We know that by the time the letter was written in May 1980 it was not. However, McKinsey wrote a letter to Mr. Hopkins saying:In our view, the company is adhering to the terms of the master agreement.McKinsey was asked by NIDA to do an analysis of the sales potential of the product and in a letter dated 31 July 1981 the firm said:The DMC 12 has generated substantial interest, and De Lorean himself has created considerable awareness of the car … There appears to be great demand for the car at prices $6,000 above manufacturer's recommended price … The impression gained from this brief inspection of dealers is that the initial launch has been most successful with dealers and customers. We are very happy that the DMC 12 satisfies American quality and drive standards. Supply is the only constraint.That too, turned out to be untrue. I do not believe that Mckinsey emerges from the affair too well.
It is true that there was no exchange control, but what were the company's bankers doing at the time? Not merely a few thousand dollars, but hundreds of thousands of dollars, were disappearing overseas. All the members of the Committee had a letter from the auditors this week. It was written by the United Kingdom senior partner who, in essence, complains that the good name of Arthur Andersen has been besmirched by the fact that the Northern Ireland Department of Economic Development has served a complaint against it and other Arthur Andersen partnerships because the United States' racketeer influence and corrupt organisation provisions have been involved.
The letter contains a reference to Volume II, Appendix VIII, Annex—Part 2, as evidence of the good work of the firm. However, Arthur Andersen made it plain in its evidence—I refer to page 26—that it based its verification of expenditure simply on a letter from a company. That suggests to me that the company was not being searching enough. One employs auditors—especially of public money—to ensure that the difficult questions are asked. They should not accept the situation on the basis of a letter. They should look behind the back door to find an answer.
I do not think that Arthur Andersen comes out of the affair too well either. I believe that my view is supported by the work undertaken by Cork Gulley since it took over the liquidation side. I have been extremely impressed by the firm's detailed investigation and the extent to which it has managed to trace where money has gone. It is to the credit of Cork Gulley that a certain amount of money has already come back to the Exchequer. We await with interest the firm's further action in the United States. The 302 lesson is that the Government should employ the best outside people they can find, and that the parties themselves have a major responsibility to ensure that when the Government entrust them with a job they do it with great assiduity and care.
I was not satisfied with my right hon. Friend's statement on nominee directors. I am not satisfied with the Government's view. It is unacceptable to be told that if a nominee director feels that because of his allegiance to the company on whose board he sits he cannot communicate with the Department that appointed him, his only option is to resign. The situation is hopeless. I understand that there is to be a company law Bill in the next Session. Nominee directors appointed by the Government should have a direct line back to the Secretary of State. They should not have to worry about resigning or to feel that they are undermining their loyalty to the company they serve.
§ Mr. Michael Shersby (Uxbridge)
As a member of the Public Accounts Committee, I feel that there are a number of key questions to be answered, if the debate is to be meaningful and if the work of the Committee, in reporting to Parliament, is to be effective.
First, who is responsible for what the Committee describes asone of the gravest cases of the misuse of public resources to have come before us for many years"?Who was responsible for the fact that the United Kingdom taxpayer lost £77 million in four years? Who was responsible for the fact that $17.65 million went walkabout in November 1978?
I had hoped that the speech of the right hon. Member for Barnsley, Central (Mr. Mason) would have provided some answers to those questions. However, we were given only an aggressive, highly partisan political speech that was extremely disrespectful to the Chairman and members of the Public Accounts Committee and made no reference whatsoever to the contract with GPD Services and the loss of that money. The speech was nothing more than an attempt to whitewash the right hon. Gentleman's own period of office, to pass the blame on to others and to criticise the Public Accounts Committee. If the right hon. Gentleman is not satisfied with the chairmanship and the membership of the Committee, why has he not said so before?
The Committee is appointed by Parliament. Its members are nominated through channels of which all hon. Members are well aware. I believe that the Committee did a conscientious job, analysed all the evidence before it and produced a report that has been welcomed by almost everyone except the right hon. Gentleman. Therefore, I was not the slightest impressed by his speech. I think that it was wanting in every respect. I am only sorry that the right hon. Gentleman is not in his place to hear the remarks which I will feel obliged to make at the conclusion of my speech.
I was particularly glad to see the right hon. Gentleman in his place earlier in the debate, and to see my right hon. Friend the Member for Spelthorne (Sir H. Atkins) in his place. I had hoped that my right hon. Friend the Member for Spelthorne would contribute to the debate and explain to the House how during his term of office the various events to which the Committee of Public Accounts report refers came about. I am sorry that that has not happened.
§ Mr. Shersby
I wish to place on record that, like many other members of the PAC, I recognise that the unemployment situation in Northern Ireland was and is severe, and that action was and is necessary to stimulate industrial development, but I do not believe that it justifies Ministers, civil servants and others taking reckless decisions which result in a substantial loss of public money. Hindsight is commonly called 20/20 vision and it is easy, people say, to be wise after the event.
Regrettable though those incidents were, I hope that all political parties in the House and all those who hold office in Northern Ireland or in any other Department of state or who aspire to hold office will read the report of the Committee and take the most careful note of the lessons which the PAC has spelt out.
I leave the House with some key questions. How did the Secretary of State for Northern Ireland in 1978 assess his man? What steps did he and his ministerial colleagues take to check the background of Mr. John Z. De Lorean? I believe that they took few, if any, steps. I believe that they were given the bum rush into this deplorable agreement with De Lorean, and that it was as a result of that that the swindle occurred.
Why were they rushed into an extraordinary agreement, which the right hon. Member for South Down (Mr. Powell) has aptly described as hair-raising, when it was known, and must have been known, that other countries had already rejected the concept of De Lorean establishing his automobile business in their countries? The Irish Republic I quote as one example. I do not believe, as my hon. Friend the Member for Scarborough (Sir M. Shaw) has said, that the old technique of saying, "Well, if you don't take it, Puerto Rico, Ireland or Detroit will have it, and perhaps a few other countries as well", is a good enough justification for a Government and 19 Ministers to have gone into this venture in the way that they did.
I want also to ask why the right hon. Member for Barnsley, Central and his hon. Friends and, indeed, my right hon. Friend the Member for Spelthorne—in fact, all those who were responsible in the Northern Ireland Department—did not appoint nominee directors to the board of DMCL who were of the calibre to stand up to De Lorean. It must surely have been evident to the then Secretary of State for Northern Ireland, to his ministerial colleagues and to their successors in office that they were dealing with a man who had a very strong personality and who would be very difficult to handle.
The nominee directors told us that it was the frequent practice of Mr. De Lorean to table documents at board meetings at the very last moment and to push them through with virtually no discussion. The nominee directors told us that the dates of board meetings were altered at short notice on frequent occasions. It was clear to any member of the Committee of Public Accounts questioning those witnesses that, with the best intention in the world, they would have a pretty difficult time in handling Mr. De Lorean or in forming considered judgments on the business of the company to the board of which they had been appointed to safeguard the public interest.
I share very much the views of my hon. Friend the Member for Northampton, South (Mr. Morris). I say to my hon. Friend the Member for Brent, North (Dr. Boyson) that I hope that he will ensure personally that for the future 304 it is made absolutely clear that any nominee director appointed to a company of this kind must have not only sufficient business experience to run an automobile company or any other business enterprise but sufficient experience to stand up to strong entrepreneurial personalities and be prepared to resign if the directors do not get proper treatment.
I remember asking one of the nominee directors what he did when he found himself faced with papers at the very last moment to which he was asked to give his approval, and what he did when dates of meetings were changed at the very last moment. To his credit, he complained vigorously about that, but I think that he will have been far more effective if he had resigned and had said publicly that he was not prepared to continue discharging his responsibility as a director of DMCL in the deplorable circumstances with which he was faced.
§ Mr. Nicholas Winterton
My hon. Friend is making a valuable contribution. Can he indicate to the House how he believes that the nominee directors apparently were able to agree very substantial bonuses to Mr. De Lorean and another director a few weeks before the company went into liquidation? It does not seem that they put up any fight. Does this show that they were perhaps doing their job, albeit under difficulty, or that they were just blatantly incompetent?
§ Mr. Shersby
I can only speculate on the reasons for that. I think that it was all part of the fact that the magnetic and powerful personality of Mr. De Lorean, coupled with the assent of the British Government to provide additional funds to take the company on yet a little further and a lack of adequate documentation, led to the directors and the nominee directors believing still that the company was being run by an automobile genius and a business genius who would in the end be successful in delivering what he said he would deliver and what the British Government believed he would be able to deliver.
I deplore the criticism of the Committee of Public Accounts and particularly of the Chairman by the right hon. Member for Barnsley, Central. I have known the right hon. Gentleman for many years, and I believe that his comments were unworthy of him and were a reflection of the aggressive and partisan stand which he took to defend his own curious and questionable position. It is not possible for the Chairman of the PAC himself to reply to such criticism. I should like to say—and I am sure that I say this on behalf of my fellow members of the Committee—that we have the utmost confidence in the Chairman and we believe that he has done a good job in producing a fair and reasonable report. I do not think it comes well from the Secretary of State who was in office at the time when these events occurred to criticise either the Chairman or the members of the PAC in the way that he did. I hope that, on reflection, he will feel that it would be wise to withdraw those remarks.
In my time in the House of Commons, serving on the Committee of Public Accounts has been one of the most worthwhile activities in which I have been engaged. The many months which we spent in trying to unravel the De Lorean affair led us all to the conclusion that we were dealing with a very unusual, special and difficult situation. I hope that the Secretaries of State of the two Governments which were in office in that period will have learnt from it. I am glad that the Government have accepted the report, 305 and I hope that in future we shall see the affairs of Government conducted more wisely and with a much closer regard to better business practice.
§ 7.8 pm
§ Mr. Stuart Bell (Middlesbrough)
One of the disadvantages for the hon. Member who winds up on behalf of the Opposition is that he finds that his speech has been made for him several times over by those who have preceded him. President Johnson once said that if we all had the same facts, we would come to the same conclusions.
Reading through the 25th report of the Committee of Public Accounts and the memorandum published by the Northern Ireland Department of Finance and Personnel, and having heard the speeches, I think it is clear that there is a certain degree of consensus in the House tonight.
I listened with great care to the hon. Members for Uxbridge (Mr. Shersby) and for Northampton, South (Mr. Morris), and during my short intervention I shall possibly cover some of the points that they made.
The hon. Member for Uxbridge referred to the speech of my right hon. Friend the Member for Barnsley, Central (Mr. Mason), who was of course the Secretary of State for Northern Ireland for part of the time with which we are concerned. It was quite right and proper, therefore, that he should have sought to put into context and to explain the decisions that were made. The point has been made on both sides of the House that two Governments were involved in these decisions. As the hon. Member for Rutland and Melton (Mr. Latham) honestly pointed out, there were times under the Conservative Government from 1979 when these agreements could have been cancelled. But I do not feel that it would be appropriate to rake over the events of the last four years. I am the only Member taking part in this debate who has no fingerprints on this file, because I was not a Member of Parliament until 1983. I can therefore speak with the utmost objectivity, after a thorough reading of the report.
My right hon. Friend the Member for Mansfield (Mr. Concannon) also sought to set the matter in context when he said that the many successes that there have been in Northern Ireland would not have been possible if there had been a rigorous obstacle course as regards investment. The conclusion of the Public Accounts Committee was, as we have heard, that there ought not to be a hidebound bureaucracy intervening and preventing the kind of investment that is needed in Northern Ireland.
The right hon. Member for South Down (Mr. Powell), who has followed the entire debate, made a useful contribution, as he normally does, and sought to place the debate in an objective and sensible context. He talked of a political misjudgment, which he said was based on a misconception of cause and effect.
As I said earlier, the then Labour Government had a policy on these matters—the policy of the day. The Labour Government wished to devise an economic strategy for Northern Ireland based on the use of public investment. It desired a strategy based on the so-called Quigley report. We have not heard that report mentioned tonight, but my right hon. Friend the Member for Mansfield reminds me of it. The Quigley report argued that the public sector should take unprecedented risks to attract foreign investment to Northern Ireland.
There is no doubt that the De Lorean affair was an attempt to renew the economic base of Northern Ireland. 306 The right hon. Member for South Down—I almost called him my right hon. Friend, but, of course, I cannot do that—sought to distinguish the effects of unemployment in Northern Ireland from the long-term, difficult effects of the security situation—problems about which we all know and live with.
There was the belief that if we could create jobs in west Belfast and the west Belfast area—which, as mentioned earlier, has five times the unemployment that we have on the mainland—that would be a very useful effort.
Following the Labour Government, we had a Conservative Government who agreed to a loan of £14 million to cover the cost of the overrun that was becoming apparent at that time. On 21 January 1981 there was a further request for £10 million and, again in the interest of keeping the enterprise afloat, the Minister of State, Northern Ireland Office, agreed to provide Treasury guarantees up to £10 million. That, as we know, was increased to £17 million by 31 December 1981.
The hon. Member for Rutland and Melton—who made a very substantial contribution to the report and to the verbatim records, which I have read—honestly put his finger on the master agreement and said, if I understood him correctly, that it might have been tightened up at that time. There was that possibility, but, as he said, he was told that the Conservative Government had made clear their intention to support the De Lorean project and there was no intention of terminating their contracts with the company. Therefore, the same constraints as were on the Labour Government were on the Conservative Government. It does a great deal of credit to the Labour Goverment and to the Conservative Government, as well as to the civil servants and the trade representatives involved in these matters, that at all times they had the interests of the people of Northern Ireland at heart. No suggestion has ever been made of any pecuniary gain by anyone in any of these offices. That, too, is a credit to all those who have been involved in this saga.
My right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon), who was the Chairman of the Committee, referred to its long and difficult inquiry. I congratulate those who drafted the report, because they sought to disentangle the great difficulties facing the Committee and came up with something that was extremely coherent and cogent and which I followed with the utmost interest.
My right hon. Friend the Member for Ashton-under-Lyne and the hon. Member for Rutland and Melton mentioned the Fallon and Srodes book, but neither gave the title—"The rise and fall of a dream-maker." The hon. Member for Macclesfield (Mr. Winterton) told the House that Mr. De Lorean was about to write his memoirs. I presume the title will be "What happens when the dream comes true?" Certainly in his case the dream came true over a period of years, but that again is no reflection on Ministers, because a Minister cannot possibly make a decision on matters such as the GPD company, which, as we know, was a Panamanian company. Even in the PAC report it is sometimes referred to as a Swiss company——
§ Mr. Bell
Yes, but it is called a Swiss company in one part of the report. That shows the difficulties of dealing with a Swiss-based company with a Panamanian 307 background. Panama is a territorial tax haven. Shareholders in a Panamanian company are not known to the public and they pay no tax on their earnings. That was regrettable, but it was not known or noticed and it certainly did not fall within the context of the ministerial decision.
I wish to pay a tribute to the hon. Member for Macclesfield, who first brought to the attention of the public the malfeasance which was involved well after these arrangements had been concluded. He mentioned the abuse and misuse of public funds and was sufficiently honest to make accusations of dishonesty and duplicity and to say that Ministers had been incompetent and apathetic. I mention that because it takes a very courageous Member of Parliament, even in this House of Commons, to criticise his own Ministers, as well as others. It is a great indication of the robustness of our system that he could express his thoughts so loudly and coherently. I congratulate him on that.
A great deal has been said about Sir Kenneth Cork. He has been mentioned by the hon. Member for Northampton, South, among others, and by my right hon. Friend the Member for Ashton-under-Lyne. I had great experience of Sir Kenneth Cork in all the years that he was with Cork Gully. He has a great reputation as a receiver and is no stranger to the variety of ways and means by which even the most famous companies can undo themslves. In evidence which has been quoted in a different context but which it would be right to set in the context of this debate, as I am winding up for the Opposition, this is what Sir Kenneth Cork said of the overall transaction:I personally believe that if this company had ben modestly run with a production of 7,500 cars and run in the way a business producing this limited quantity of cars and if the up-front money had not disappeared, there is a good chance that that business employing 1,200 or 1,400 might well be running today.A great deal was made of the point about Lord Bruce-Gardyne, who during the last Parliament made several interventions on this subject. He is a financial man and writes financial columns for the Sunday Telegraph and is very up-to-date in these matters. In a short debate in the other place recently, he called the De Lorean affair "a lunatic adventure." I submit that there was nothing lunatic about its conception. The project was designed to bring work to west Belfast in the context of 1978 and it was supported by Labour and Conservative Governments. It has as its inspiration what must have been the most noble of motives—providing work for able-bodied men and women who were otherwise destined to spend their lives in the dole queues.
It is said that the 2,000 permanent jobs which were to have been created would have cost £17,953 per job or, as others have said, £18,400 per job. The figure quoted by the Northern Ireland Comptroller and Auditor-General was £18,909 per job. The fact remains that both Labour and Conservative Governments, over a four-year period, showed their commitment to the people of Northern Ireland, their concern for the future of those people, their desire to help those in the Catholic minority who were out of work and demonstrated that it is untrue to seek to give the impression that Labour and Tory Administrations do not care what happens in Northern Ireland.
The paths that led to the destruction of the enterprise were highlighted by the PAC, and it is hardly relevant for me to go over them tonight. Money was poured into a subsidiary company rather than into a holding company; 308 nominee directors, once appointed, were ineffective; and there was a lopsided shareholding between the agencies which provided the money and the gentlemen who were to provide the expertise.
It is interesting to note how civil servants appeared before the PAC to explain how it all came about. The PAC does not normally question Ministers. We still have the concept of ministerial responsibility, and nothing that has been said in this debate detracts from that. However, it is right in a matter such as this, with public money involved, that those who bore responsibility for advising successive Secretaries of State and other Ministers of the Crown should give their side of the story.
As I said, their motives cannot be impugned. None was activated by a sense of personal gain, all were concerned for the future of Northern Ireland and all sought to the best of their abilities to bring work to the people of that area. The same officials who negotiated the De Lorean contract negotiated six other new American investments which are currently providing 2,300 jobs, as my right hon. Friend the Member for Barnsley, Central pointed out. Those 2,300 jobs represent about 20 per cent. of all existing jobs in United States companies in Northern Ireland.
That fact must be put in the balance and we must discuss the matter in that context. We must never lose sight of the fact that public sector employment in Northern Ireland accounts for 45.8 per cent. of total employment. That does not mean that the conclusion of the PAC can or should lightly be brushed aside. The PAC report—this sums up the Opposition's point of view—said thatthe De Lorean project represents one of the gravest cases of the misuse of public resources to come before us for many years.The evidence garnered by the Committee disclosed what it described asa shocking misappropriation of public and private moneyand showed also that De Lorean's car company received about £77 million of United Kingdom taxpayers' money. As hon. Members have pointed out, most of that has been lost. It was gratifying to hear the Minister say that the Government would continue to seek to regain as much of that money as possible. When I was in Belfast on Monday night I was told that about £7.7 million had already been recovered. The Minister described it as £6 million in money and £1.8 million in assets, so the reports are not entirely dissimilar.
The report of the PAC and the events of the four years 1978 to 1982 have resulted in important changes being made in the method by which future projects will-be vetted for Northern Ireland and for projects relating to other Departments which handle public money. The Minister gave an assurance that that would be done.
The criteria for Northern Ireland have not changed because there is a desire to create work for the people in that area. The Industrial Development Board, in its evidence to the PAC, pointed out that there should not be over-excessive caution or too great a bureaucratic approach in the search for good investments which will yield jobs.
The lessons of De Lorean will, however, be with us for some years. The Minister said that those who ignored the lessons of history had to live through them all over again. Shakespeare wrote:If to do were as easy as to know what were good to do, chapels had been churches, and poor men's cottages princes' palaces.309 If we were able to relive our lives with the benefit of hindsight, I am sure that the first in the queue would be those Northern Irish representatives who had to deal with Mr. De Lorean.
Some good has come out of this sad story. As my hon. Friend the Member for Normanton (Mr. O'Brien) said, a factory was built on a green field site at Dunmurry, west of Belfast, and for a time it looked as though this high risk venture, as it was always called, would pay off. Even the consultants, McKinsey, thought that there might be consolidated profits of $30 million on $350 million to $400 million of sales. In fact, royalties of £600,000 after tax were received by NIDA in respect of 3,242 cars.
The employment target of 1,000 was met a year after the commencement of production and the five-year target of 2,000 jobs was met by August 1981. By January 1982, employment had reached 2,600, and a further 76 jobs were provided on site by canteen and security companies on contract. The annualised gross wages and salaries bill for the labour force of the De Lorean company was estimated at about £17 million, based on then current average earnings.
It is clear, therefore, that skills were learnt in a short time by a willing and eager work force who showed, if nothing else, that where there was a will there was a way, and that where there was an opportunity for work that opportunity would be quickly and effectively taken.
The recommendations of the PAC have been accepted by the Government, and we have had an interesting and lengthy discussion on the subject of nominee directors. I had imagined that the question of nominee directors had been resolved in 1957, at the time of the famous bank rate leak, when the Bank of England found itself in some difficulty, with two nominee directors sitting in on the setting of the bank rate and a leak occurred two days later. While that certainly cured the Bank of England in that respect, it has not cured any of our public bodies.
On the plus side of the De Lorean affair, cars were actually produced. In all, 8,333 were shipped to the United States and retailed by dealers. The investment, in substantial part, found its way back into the local economy and provided a respite, albeit short-lived, for those otherwise unemployed. While, therefore, there is a feeling of a total loss of perhaps £77 million, that has not entirely been the case. There were also lessons to be learnt for the future. Some of those lessons have already been accepted in Northern Ireland, with a consequent vesting of responsibility in the Industrial Development Board.
About £11.5 million was paid to Lotus, but that was not entirely lost to the local community and economy. I have a list with me—it is too long to read—of local industries in Northern Ireland, and some on the mainland, which benefited from the transaction.
Against that we must not lose sight of the fact that De Lorean managed to obtain a British Government investment of £76.92 million in grants, loans and guarantees, inclusive of share capital, against a modest contribution—the hon. Member for Macclesfield will note the figure—of £564,000. Whether that was authorised capital or actually paid up, we shall probably never know.
The next debate is about the coal industry. There was a slogan on the coal mining banners of old which read:We take up the task, the burden and the lesson.Placed in the context of De Lorean, the task must be and will remain our commitment to the people of Northern 310 Ireland, and for them the quest for jobs. The burden remains in seeking to urge the Industrial Development Board never to give up that quest. The lessons are that, while stringent rules and regulations can and must apply where public money is involved, everything must be done to prevent the likes of Mr. De Lorean from slipping through the net again. Not only did he deprive the taxpayer of his money, which was bad enough; he raised the expectations of ordinary people in Northern Ireland and then dashed them to the ground, with all, the disappointment that consequently flowed from that. If those lessons can be learnt, some good can come out of this sad affair.
§ Dr. Boyson
The hon. Member for Middlesbrough (Mr. Bell) said that his fingerprints were not on the story of De Lorean, whoever else may have had his fingerprints on it over the relevant period. I inherited my portfolio in September last year, so I cannot look back on the story from a great height. My hon. Friend the Minister of State, Home Office, the hon. Member for Pudsey (Mr. Shaw), has joined us. He has been away for most of the day and is delighted to be with us.
Much of the trouble is linked with unemployment. Risks have been taken in the past in Northern Ireland. The Public Accounts Committee has looked at the various problems and pointed out the lessons to be learnt from them. In west Belfast, unemployment was five limes higher than in greater Belfast, where unemployment was already much higher than in Great Britain. In those circumstances, people looked desperately for employment of any kind.
The Government accept totally the recommendations of the Public Accounts Committee in its reports. I pay tribute to the Chairman of the PAC, the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), and the other members of the Committee. I also pay tribute to all the hon. Members who have spoken seriously and straightforwardly in the debate. Their labours have not been in vain. The reports have been studied; indeed, changes were made even before they were published. Being questioned about a problem helps one to assess it and to decide what needs to be done about it. It is clear that private money is needed as well as public money. It is also clear that projects must be assessed without the rush or urgency that was mentioned by several hon. Members, including my hon. Friends the Members for Scarborough (Sir M. Shaw), Rutland and Melton (Mr. Latham) and Northampton, South (Mr. Morris).
The best way for a con man to sell something is to rush the sale; there can be no doubt about that. Once negotiations have started, it is very difficult to withdraw from them. It is like the treacle well in "Alice in Wonderland". What is at the bottom of a treacle well? Treacle. Once one is in a treacle well, it is extremely difficult to get out of it. I think that my hon. Friend the Member for Macclesfield (Mr. Winterton) will agree with that. I call it the mangle procedure: if one gets one's fingers in the mangle, it turns only one way. One can go right through it or just lose one's fingers. People do not like losing their fingers. Once £14 million has been spent and another Government take office, they feel that they must get it back somehow or other.
§ Mr. Nicholas Winterton
The question that I directed through you, Mr. Deputy Speaker, to the right hon. 311 Member for Barnsley, Central (Mr. Mason)—who unfortunately is no longer in his place—was whether we could be told how much John De Lorean and his companies put up as their contribution to the setting up of the De Lorean company, to which was added a very hefty contribution from the British taxpayer.
§ Dr. Boyson
My hon. Friend the Member for Macclesfield has spoken today of events with which he has lived for a long time. I can give him the figures. The De Lorean company subscribed £546,000 for shares in De Lorean Motor Cars Ltd. There was no personal money from De Lorean in that sum.
§ Dr. Boyson
The money subscribed to the De Lorean Research Ltd. partnership—$50,000 from each person—made up a figure of $12.5 million. That was paid over for the development of the motor car, but again none of it came from Mr. De Lorean.
I repeat that we have accepted the 13 principles. I am surprised that I did not see Lord Bruce-Gardyne looking at us today from the skies. We shall have to see in the Sunday Telegraph what he says about the debate. Even he agreed that the 13 principles were a great advance on the previous position.
The right hon. Member for Barnsley, Central referred to the problem of unemployment. He sent me a note to say that he was unable to stay after 7 pm; that is why he is not in his place now. The Government's concern to create employment in Northern Ireland is no less than that of the previous Labour Government, and I acknowledge the kind and courteous way that that point was made by the hon. Member for Middlesbrough. I agree with him that it is no good raising expectations and then not fulfilling them.
The £77 million that was spent on De Lorean Motor Cars cannot be spent again. The loss of that investment did great harm to investment prospects in Northern Ireland for a considerable time. But it must be put on record that the failure of the De Lorean project was not the fault of the workers in Northern Ireland, who did a remarkable job.
312 Since 1979, when the Government took office, 30,274 jobs have been promoted by the Industrial Development Board and the Local Enterprise Development Unit. Those jobs have been promoted by encouraging businesses to come to Northern Ireland, and I have seen some of them. Therefore, the Government's concern is at least as great as that of any other Government.
If people do not learn the lessons of history, they live them again. The lessons are there to be seen; they are never identical, but they can be recognised. The PAC has shown how we can learn those lessons. As I said earlier, we wholly accept the PAC's reports, and I give the Chairman and members of the Committee full credit. If we learn those lessons, irrespective of party, I trust that no Government will in the future have to deal with a situation such as that created by De Lorean.
The expenditure of the money on De Lorean would not have been possible if there had been careful technical assessment of the project from the beginning. It would not have happened if the project had not been rushed, and if the 13 principles had been followed.
The whole House owes a great debt to the Public Accounts Committee. I pay particular tribute to its Chairman and to those members of the Committee who have spoken in the debate. The reports have been read carefully in Northern Ireland. They have guided us in what we have been doing. We accept all the main recommendations.
The question of nominee directors is important, My hon. Friend the Financial Secretary to the Treasury has been listening to the debate.
The time of the PAC and of the Members who have spoken in the debate today will not be wasted if we can ensure that in the future there are no more De Lorean failures and if we can at the same time get good private and public investment.
§ Question put and agreed to.
§ That this House takes note of the Twenty-Fifth Report from the Committee of Public Accounts in the last Session of Parliament on Financial Assistance to De Lorean Motor Cars Limited (House of Commons Paper No. 127 of Session 1983–84) and of the Northern Ireland Department of Finance and Personnel Memoranda on that Report (Cmnd. 9374 and House of Commons Paper No. 199 of Session 1984–85).