Loans granted in the dying days of MG Rover to keep the carmaker afloat have been written off by the Department of Trade and Industry.
Two loans totalling £6.5 million were paid to the Longbridge firm after it collapsed in April last year.
They were made by the then Trade and Industry Secretary Patricia Hewitt to keep alive Rover's last ditch negotiations with the Shanghai Automotive Industry Corporation.
The DTI's recently published accounts for 2005 say: "It is now clear that this loan will not be repaid in full and the majority of the £6.5 million will have to be written off."
The payments were made to Rover's administrators to keep production going before the joint venture talks with SAIC ultimately stalled.
They were supposed to have been repaid on completion of a joint venture with SAIC or within six months.
However soon after the payments were made, the talks with SAIC broke down irrevocably.
A spokesman for the DTI said: "The loan was made to provide breathing space for the chance of negotiating a going-concern sale that could have secured the long term future of MG Rover.
"This was still on the cards at the time and if it had been successful, the money would have been repaid in full.
"Unfortunately and sadly this was not the case."
At the time the loans were criticised for being politically motivated, with fears running high that Rover's collapse and ensuing job losses could trigger a backlash in the constituencies of Labour MPs in the run up to a General Election.
Julie Kirkbride (Con Bromsgrove), whose constituency includes part of Long-bridge, criticised the payment adding the Government did not do enough to save the plant. She said: "We always knew the Government was interested in keeping MG Rover running, if at all possible, until the General Election was out of the way.
"The writing off of the loan confirms that suspicion. There was a suspicion the loan was only window dressing, and the Government could have done more to help."
But Richard Burden (Lab Northfield) said: "Granting the loan was the right thing to do. If it had been successful, it could have help avoid the unemployment benefit and social costs of Longbridge closing. It was a risk, but a risk worth taking. If it was an electoral ploy it would have been paid out for longer."