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Last updated: July 22, 2010 10:43 pm
Ministers were coming under pressure on Thursday night to review the cancellation of an £80m government loan to Sheffield Forgemasters, the engineering group.
Senior Labour figures accused the Conservatives of taking the decision as a result of lobbying from a senior party donor after it emerged that the previous government had allocated funding for it, contrary to the statements of coalition ministers.
David Cameron, prime minister, and Nick Clegg, deputy prime minister, have long said the loan had to be cancelled because there was no money for it. But Labour MPs have alleged that it was more to do with behind-the-scenes lobbying by Andrew Cook, a Sheffield businessman and Tory donor.
Mr Cook’s intervention emerged on Wednesday night after a letter was published from him to Mark Prisk, a Treasury minister, calling for the government to cancel the loan.
The letter read: “I am the largest donor to the Conservative party in Yorkshire and have been since David Cameron was elected leader.”
It went on to mention the Forgemasters loan, saying: “The loan is probably unnecessary and possibly illegal under EU rules.”
Mr Prisk passed the letter to the department but it was not taken further as the loan was found to comply with EU rules.
Mr Cook said on Thursday his engineering company was not a competitor to Forgemasters but he was acting as “a vocal campaigner against the misuse of public funds to support private business”.
The businessman added that he had offered to organise a private loan for the company but the negotiations came to nothing.
The government stressed that Mr Cook’s letter was not given any extra weight because of his status as a Tory donor. It also highlighted the fact that two senior Liberal Democrats, Vince Cable and Danny Alexander, were central to the decision.
Mr Cable, the business secretary, is under fresh pressure to explain the thinking behind stopping the loan after Pat McFadden, the shadow business secretary, published evidence to suggest that the government was wrong to suggest it had not been properly accounted for.
Mr Cable said on Thursday night he had not seen either of the e-mails from Mr Cook. He was generally aware that representations had been made to the department, including from an industrialist but not who he was or that he was a donor to the Conservative party. He was satisfied that the representations were handled appropriately.
Mr McFadden released a letter he received from Simon Fraser, the permanent secretary to the business department, which said any such funding decision would have been properly accounted for.
“When a new project or policy is considered the department provides thorough advice to ministers, including . . . available sources of funding. When funding cannot be identified from within existing departmental budgets it is agreed with HM Treasury,” the letter read.
Mr McFadden said: “The justification that the Labour government took decisions for which there was no finance available has proved to be wrong.” He has now written to Mr Cable to ask him to set out the financial case for the cancellation.
The developments added to a growing uncertainty over the reasons behind not lending the money. They came after the Financial Times revealed that government claims that Forgemasters’ directors were not willing to sell some of their stakes in the company to raise extra finance were false.
Labour also accused the government of misusing public money after the Department for International Development announced that it would finance an international airport on the South Atlantic island of St Helena.
The DFID said: “St Helena is one of the most remote inhabited islands in the world and is currently only accessible by sea.”
But Douglas Alexander, the shadow development secretary, said: “Given the economic conditions facing the UK and pressures on the international development budget – we had rightly questioned whether this was an appropriate decision.”
The decision followed a campaign to build the airport by Lord Ashcroft, the Tory peer and donor. Lord Ashcroft previously called his efforts “a little one-man protest that I cannot land there at St Helena”. He could not be reached for comment.
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