Chancellor launches £50bn funding initiative for infrastructure and exports
UK Guarantees scheme will underwrite funding for critical projects
- Published in News.
George Osborne has announced the new "UK Guarantees" scheme
The government will underwrite up to £50 billion of investment in UK infrastructure and exports, under radical plans unveiled by Chancellor George Osborne.
The initiative comes amid mounting pressure on ministers to support UK plc by loosening the purse strings. Earlier this week the International Monetary Fund cut the country's growth forecast to just 0.2% for 2012.
However, the move will fuel criticism that the British taxpayer is taking on liabilities that the private sector considers too risky.
Under the new UK Guarantees scheme, up to £40 billion of funding will be underwritten for critical infrastructure projects that have stalled because of difficulties raising money from private investors.
The government will charge for helping to secure finance for the projects, which will be in sectors such as transport, energy, communications, and education.
Applicants for funding will have to meet strict criteria, including being ready to start construction within 12 months, having a positive impact on economic growth, and providing good value for the taxpayer. The first guarantees are expected to be made in the autumn.
The government will also step in to ensure that big public-private partnership projects are not delayed. These schemes get all their up-front funding from the private sector. For the next year the state will lend up to £6 billion to some 30 of these projects as an “exceptional response to difficult market conditions”.
The loans, funded from departmental capital budgets, will be made on commercial terms, and only for a minority of the overall project cost.
George Osborne and Treasury chief secretary Danny Alexander also announced that a £5 billion export refinancing facility would be launched later this year.
The sectors benefiting will include aerospace, oil and gas extraction equipment, transport and telecommunications infrastructure services, and hospital construction and management services.
Osborne said: “The credibility the government has earned through tackling the deficit is already helping millions of British families and businesses through keeping down the cost of borrowing.
“Now UK Guarantees will use that hard-won fiscal credibility to provide public guarantees of up to £50 billion of private investment in infrastructure and exports.
“Britain's credibility has been hard won and involved difficult decisions, so I want to make sure its benefits are passed on to the whole economy.”
Commenting on the new scheme, Dr Richard Wellings, from the Institute of Economic Affairs, said: “There is a real danger that the government's infrastructure investment plan will end up hindering economic recovery rather than promoting it.
“If the funds are used for green energy schemes or public transport projects, for example, this is likely to lead to higher bills for consumers and higher subsidies from taxpayers.
“The government needs to take a much more economically rigorous approach to infrastructure investment to ensure that taxpayers and consumers obtain good value for money.”
Nick Baveystock, director general of the Institution of Civil Engineers, said: “At last government is using its balance sheet to provide guarantees to get infrastructure projects moving. But, as ever, the key is to see actual delivery of projects not just talk about how they might be facilitated.
“Here the government’s record is less good. I hope the criteria for accessing the guarantees are not made excessively difficult – and also that, if the scheme is not having the desired impact, government takes rapid action to review the criteria.”