Alchemy Partners, the private equity business that is negotiating to buy Rover from BMW, yesterday called for the replacement of Alex Stephenson, head of a taskforce set up by the government to prepare for expected widescale job losses.

Alchemy is concerned that Mr Stephenson’s brother, Nick, is involved in a rival bid for the carmaker, led by John Towers, a Midlands entrepreneur and former Rover executive.

It accused Mr Stephenson of a conflict of interest, and broke off discussions with the taskforce.

The extraordinary row is a further blow to the reputation of Stephen Byers, the trade and industry secretary, who appointed Alex Stephenson.

Jon Moulton, head of Alchemy, sent a fax to Mr Byers yesterday in which he said: “We were assured by Nick Stephenson that he was not part of a rival bid, and on that basis we continued to work with Alex.

“We have now had confirmed by Alex that his brother was working with another bidder. Alex has informed us that you were personally aware of this.”

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Union hopes of an alternative bid to save thousands of jobs at Rover’s car plants rose last night following talks with the government.

Afterwards, the unions said they expected a formal proposal from the new consortium led by Mr Towers within a week.

Bill Morris, general secretary of the TGWU general union, said: “We are now very clear that BMW is prepared to give consideration to an alternative bidder. We think the bid is a viable one.”

There would be job losses, but “nowhere near” as many as proposed by Alchemy, said Mr Morris.

Mr Towers, who fronts a group of disgruntled Rover car dealers, spent more than an hour outlining their proposals to Mr Byers.

BMW warned, however, that any rival offer would have to be concluded in the same time-frame as the Alchemy deal – due to be finalised by the end of this month.

“For the moment, Alchemy remains the only official offer on the table,” said a spokesman.

Alchemy has previously dismissed the rival approach, pointing out it has an “exclusivity agreement” with BMW.

The venture capital firm plans to reduce sharply output at Longbridge, Rover’s biggest plant in Birmingham, and replace existing models with new sports cars under the MG badge.