Inquiry over £250m public cash for failed plant

For a South Wales economy battered by years of job losses in its mining and steel industries, it seemed like a dream that was too good to be true.

And when the former prime minister John Major hailed the creation by Korean giant LG of a massive electronics and computer plant in Newport, the statistics were indeed staggering. A £1.7bn project, some 6,100 jobs, the biggest inward investment in the whole of Europe.

But last night - as the community learned that less than 400 staff would be left at a tiny unit in the plant - the full impact of what some are calling Wales very own "de Lorean" affair was beginning to sink in.

The Commons Public Accounts Committee, Parliament's financial watchdog, is poised to launch a full inquiry into how some £247m of taxpayers' money was spent on a project that achieved few of its promises.

When LG announced in July 1996 that it was setting up a factory in Newport, ministers from the then-Conservative government queued up to welcome it. The Welsh Office was so keen to clinch the deal that there were allegations of a bidding war with the Scottish Office.

The Government was forced to deny that a grant aid, worth around £47,000 per job, was too generous and it pressed on regardless. Clusters of high-tech companies were planned for former pit communities, centring on the M4 corridor and it seemed critics were simply carping.

But the collapse of economies across Asia in late 1997 and 1998 threatened dozens of Far Eastern electronics factories sited in Wales and the UK. About 2,000 jobs at the Sony, Panasonic and Hitachi plants were lost in Wales alone. The LG factory survived, but the promise of more than 6,000 jobs was never realised. Its semiconductor plant was built but never filled, while its TV and computer screen section hired slightly less than 2,000 people at its height.

The Welsh Office had given Regional Selective Assistance of £69m, while the Welsh Development Agency (WDA) had allocatedproperty, land, infrastructure and technical support grants. Some £117.5m was given to a huge shell of a high-tech semiconductor factory with nothing in it.

On Thursday, LG Philips, the joint Korean-Dutch firm now running the computer plant, announced it was axing 870 jobs, blaming a downturn in the market and increased competition. A small unit will remain.

The WDA and the Welsh Assembly refused to say how much of the state aid was actually drawn down by the company and how much was likely to be recouped. But it is estimated that £125,000 of taxpayers' cash was spent on every job at the plant.

Geraint Davies, a member of the Public Accounts Committee, wrote yesterday to Sir John Bourne, head of the National Audit Office, to suggest that the NAO prepare a paper on the affair with a view to a full investigation. "The PAC should look into any examples of multi-million pound losses of taxpayers' money in certain companies and review the success of the past and current regime," he wrote.

"In particular, we want to know whether the amounts invested versus the number of jobs that actually materialise represents value for money. We need to be sure that penalties are strong and the grant conditions rigorous for firms like LG."

Adam Price, Plaid Cymru MP for Carmarthen East and Dinefwr, said there was a strong case for offering more aid to indigenous firms and replacing grants with tax reliefs. "Britain's record on giving cash to multinational corporations for what turn out to be phantom jobs is abysmal," he said.

"There has to be an NAO investigation to find out not just how the deal was drawn up in the first place but to shed light on the dimly lit area of regional aid in general."

Peter Hain, the Welsh Secretary, said: "This was William Hague's pre-election bonanza and Wales is now paying for it. He spent virtually the entire regional selective assistance for the year in one bang. The lessons are that we shouldn't blindly go for showcase projects and try for more target investment in niche projects."

Rhodri Morgan, the First Minister, said that most people had been "bowled over" by the sheer dimensions of the project. "An enormous fuss was made of it by the Tories, as if it would transform the economy of Wales in one fell swoop," he said. "It shows that you shouldn't put all your eggs in one basket."

Jenny Randerson, the Liberal Democrat economic spokeswoman on the Welsh Assembly, said it was a "scandal" that £47,000 had been paid for each job. "The Tories were bedazzled by the thing, but that doesn't mean public money should be written off because of their wild optimism," she said.

A former senior figure in the WDA said that civil servants couldn't compete with highly paid lawyers of multinationals. "They simply didn't know how to draw up a contract," he said. "The biggest contract many of them had ever seen was for the double glazing on their house."

HOW POLITICIANS GREETED THE DEVELOPMENT

"It is a tribute to the Welsh workforce. It reinforces Britain's progress in becoming the enterprise centre of Europe and it will get better" - John Major

"It's unqualified good news for Wales and the whole of Britain. It's the biggest vote of confidence the Welsh economy has ever had." - William Hague, Welsh Secretary

"It will provide well-paid, secure jobs well into the next century. LG could lead the regeneration of south-west Wales as well as the Valleys" - Peter Hain, Welsh Office minister

"The largest single investment the UK has ever seen" - Ian Lang, President of the Board of Trade in the Conservative government