Westminster Blog

Steel works at Sheffield Forgemasters

The coalition is slowly learning it might be worth getting the details right when announcing controversial policies.

Following Michael Gove’s botched announcement about school rebuilding project, David Cameron, Nick Clegg and Vince Cable have all been under  attack this morning over revelations in the FT about the decision to cancel a loan to Sheffield Forgemasters.

The story revealed that contrary to statements made in the Commons by both Nick Clegg and David Cameron, the directors at the steel company had agreed to sell shares to private equity groups to raise extra cash as part of the loan deal. Ed Miliband (taking a leaf out of the Ed Balls’ “fast response” playbook) has written a letter to John Bercow, the speaker, calling for the two to apologise to the House.

And this morning, Vince Cable, the business secretary, suffered a sustained attack at the hands of the business select committee, led by Labour MP Rachel Reeves, over the decision.

Reeves told Cable that people in Sheffield were bitterly disappointed by today’s revelations, as they had believed the loan was turned down because of a refusal by Forgemasters’ directors to dilute their equity.

I’m not sure Reeves claim really washed. The government had always said (and our story made clear) that the decision to cancel the Forgemasters was at least in part taken for cost reasons. But ministers had added in this inaccurate line about equity dilution and so undermined their own case.

The news got even worse while Cable was testifying to the committee, as the company announced that after meetings between directors and Mr Cable’s department, they could find no private sector alternative to the government loan and so would be shelving the project entirely.

That is not to say no private option was available – just that to raise the money, the management would have had to sell the majority of the company, something they were loathe to do just two years after buying it out.

This is presumably what Cameron and Clegg meant when they accused directors of not being willing to dilute their capital. But their attacks were badly worded and that’s why they have now caused such controversy.