Forgemasters loan 'could have been funded'

Tuesday, 14 December 2010 12:01 AM

By politics.co.uk staff

The government's arguments justifying its controversial decision to cancel an £80 million to Sheffield Forgemasters have been questioned by MPs.

The business innovation and skills (Bis) committee released its report on the cancellation today. It implies the coalition's accusation that former business secretary Peter Mandelson made a commitment to honour the loan knowing it was unaffordable are erroneous.

The report stated: "We are convinced that former ministers signed off the loan in the full knowledge that it could be funded."

The MPs recognised that when the change in government came about, Bis "had to deliver significant savings and decide where to allocate its limited resources.

"While we disagree with the process, we recognise that it was the department's responsibility to deliver these savings."

The issue of the Forgemasters loan has been a particularly contentious one for the coalition - with Sheffield MP and deputy prime minister Nick Clegg coming under sustained fire for the abandoned commitment.

The government has since argued that the funds for the loan could not be found given the department's straitened budget, but the committee seems to debunk this claim.

The report continues: "Some Bis projects requiring government funds were reapproved even in the absence of any contractual commitment. A choice could therefore have been made by ministers on where the axe would fall.

"We do not believe that any substantial comparative cost-benefit analysis was undertaken on those non-contractually committed projects under review.

"Rather it appears to be the case that the Sheffield Forgemasters loan was identified as an easy cost saving.

"While this is a legitimate way to proceed, the department should have been more transparent in articulating this process and not hidden behind the simple defence of affordability."

The report is bound to embarrass the government as it contradicts arguments made over cancellation of the loan, including that the company was refusing to dilute its equity. The MPs stated the board was "willing" to do so as a condition of the loan and this "did not represent an obstacle" for providing the £80 million in funding.

Business secretary Vince Cable has said he is willing to "entertain" the notion of a loan if the company submits a new application.

The committee concluded: "We urge the government to continue in its efforts to secure funding for this project-whether by public or private funds-so that an opportunity to take a lead in this important industry is not lost."

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