MPs have criticised the Department of Trade and Industry for its planning prior to the collapse of MG Rover last year and its subsequent response, although they concede that it was a situation "fraught with risks" for the government.
The committee of public accounts believes that the DTI's greatest error was not to establish closer links with the firm's holding company, Phoenix Venture, with its relationship with the business described as "distant".
Edward Leigh, the select committee's chairman, explained that the car firm's decline had cost taxpayers £270 million, with more than 6,000 employees losing their jobs as a direct result.
"The cost to the private sector and former employees may well exceed £600 million, mainly as a result of a deficit in the pension fund which may have to be met by the pension protection fund," he said.
"But it could have been even worse. The damage to the local economy would have been even greater without the efforts made by local agencies to help the local economy diversify in the years before the collapse of the company."
But Mr Leigh added that MPs had uncovered "serious gaps" in the government's contingency planning, adding: "The truth is that it had never managed to get close enough to the company to develop comprehensive plans for this kind of scenario and found itself trying to catch up with a rapid developing situation."
MG Rover went into administration in April last year, with the DTI taking several measures in the four months prior to help avoid this situation after becoming alerted to Phoenix Venture's financial troubles.
The government convinced HM Revenue and Customs to defer VAT payments, but faced with the prospect of breaching its own policy of interfering with private sector companies, little else was undertaken.
In the aftermath of Chinese company SAIC pulling out of a takeover bid and MG Rover's collapse, the DTI paid administrators a loan of £6.5 million to help secure provisions for employees, a move praised by MPs, but ultimately £5.2 million of this loan will be written off.
The DTI has assigned company inspectors to investigate the business affairs and dealings of MG Rover, with their findings to be published at the end of this year.