LOSSES made by the controversial Teesside Development Corporation could yet reach £40m, a top civil servant admitted last night.

Sir Richard Mottram said many of the dealings of the now defunct regeneration body was part of a "pretty indefensible saga".

He told a special hearing of the Commons Public Accounts Committee that, four years after it was shut down, the exact TDC deficit is unknown - but it is expected to be £6m more than the previous £34m estimate.

The Department of Transport, Local Government and the Regions Permanent Secretary said of the TDC: "There are a number of examples where the rules were bent or broken."

Former TDC chief executive Duncan Hall was also cross-examined by MPs, angered and astonished by a damning National Audit Office report into its operations.

Questioned by Gerry Steinberg, City of Durham Labour MP, Mr Hall could not explain why key TDC files had been shredded.

Mr Steinberg told him: "You abused your situation, knowing full well that if anything went wrong, you would be bailed out by the Government."

Mr Hall said that while he personally had not shredded files, a separate team was set up two years before the TDC was wound up "whose responsibilities included disposal of files".

Mr Hall said the TDC's losses were minor in comparison to the £1.1bn of private investment and 12,000 new jobs it had brought to the area.

He said he was "surprised" by the criticisms in the report. "At the time, the situation of the corporation was that it didn't feel that it had made mistakes."

The report showed that the TDC spent £34m without necessary Whitehall approval, granted a £500,000 mortgage against Government guidelines and paid out £5.1m at its last meeting - without the knowledge of the Commission for New Towns, which took over responsibility for its assets.

About £1m was lost to the taxpayer when the TDC rented Middlesbrough FC the land for its Riverside stadium for just £1 per year, while it lost almost £18m on the Tees barrage. In some cases, official proposals were submitted to the Government long after the money was committed.

The MPs were highly critical of Sir Richard's department, responsible for overseeing the TDC. Sir Richard conceded it had decided against an internal investigation when then TDC chairman, Sir Ron Norman, threatened to resign.

He added the department turned a blind eye to its dealings while it was "delivering the goods" in terms of regeneration work.

Sir Richard named three of his predecessors at the then Department of Environment - including current Cabinet Secretary Sir Richard Wilson and Treasury Secretary Sir Andrew Turnbull - as having made decisions not to sack Mr Hall and the TDC board when errors came to light.

Mr Steinberg accused Mr Hall of forging ahead with deals "that would never have been acceptable in the private sector."

He was questioned closely on the granting of a £500,000 mortgage to Haverton Hill Engineering Ltd, which later went into administration without repaying the debt and on various public monies squandered on schemes which failed to materialise.

Mr Hall replied: "On occasions some of the negotiations worked, some didn't."