The cancellation of the £80 million loan to Forgemasters, the Sheffield engineering company, is in the headlines again, after the news emerged that the Deputy Prime Minister had admitted that claims he had made in the Commons were wrong. As Tim has reported, the loan to Forgemasters would have created 180 new jobs in the nuclear energy industry and marked a real commitment to the future of British manufacturing.
The coalition’s position on the cancellation of the loan has not always been entirely clear. Sometimes the Prime Minister and Deputy Prime Minister have seemed to suggest that affordability wasn’t their only reason and that the loan was unreasonable, because the company’s owners were unwilling to sacrifice their capital stake. At Deputy PM’s Questions on 22 June, Mr Clegg certainly seemed to be saying that the owners were unwilling to finance the venture at the expense of their private interests:
“No, the new owners have been quite open about why they sought a Government loan-because, as they have publicly stated, they felt the terms they were receiving from banks were not good enough and because they did not want to dilute their own shareholdings in the company. Do I think it is the role of Government to help out owners of companies who do not want to dilute their own shareholdings? No, I do not. Every Member of this House could identify companies that are struggling more than Sheffield Forgemasters and that would also like to receive a Government loan.”
At Prime Minister’s Question Time on 7 July, Mr Cameron said much the same:
“The question is whether it is an appropriate use of taxpayers’ money to give it to a business that could raise that money by diluting its shareholding.”
In yesterday’s Financial Times, it emerged that Graham Honeyman, the company’s chief executive, had told Mr. Clegg that he was willing to dilute his share, and that Mr. Clegg had admitted this in a letter. The FT speculates that the government will now be under some pressure to reconsider their decision.
Labour Party leadership candidate Ed Miliband has written to the Speaker, asking him to make the PM and Deputy PM apologise and correct their statements.
Last month, questioning by Clive Betts MP revealed that the Government would have made nearly £31 million in interest on the loan. Mr Betts argues that, together with the extra tax that would have been paid by the new employees and the savings on benefits, the Treasury would have made a profit on the deal.