Government will also provide loans for stalled PFI schemes

George Osborne

The Treasury has unveiled a programme to kick start up to £46bn of construction projects by providing government guarantees to underwrite private financing.

Chancellor George Osborne and Treasury chief secretary Danny Alexander will formally announce the scheme at a visit to a Crossrail construction site this morning. The scheme includes:

  • A guarantee scheme designed to underwrite private finance for £40bn of otherwise stalled infrastructure projects
  • A temporary loan scheme to help £6bn of PPP projects – including PFI schemes - hit by the financial crisis to reach financial close
  • Guarantees to support foreign firms buying £5bn of British goods

The central part of the announcement will see the launch of ‘UK Guarantees’, administered by Treasury quango Infrastructure UK (IUK), to underwrite major projects which are viable but struggling to secure adequate private financing in the current depressed economic environment.

Individual projects will have to apply to IUK to be part of the scheme, which a Treasury spokesperson said could enable £40bn of construction projects in the existing pipeline to go ahead.

Guarantees will either be in the form underwriting the construction risk on a project, or underwriting the risk of future revenue streams, such as for road-tolling projects. The government expects the first government guarantees to be in place by the autumn, despite the fact the scheme requires primary legislation to proceed.

Infrastructure projects will be able to apply to be part of the scheme from today. To qualify bidders will have to show the project is nationally significant, ready to start construction within 12 months from a guarantee being given, dependent on a guarantee to proceed, and good value to the taxpayer.

The announcement follows the decision by prime minister David Cameron on 17 May to ask the Treasury to investigate the use of government guarantees to help push the construction of infrastructure projects.

The second part of the announcement will see Osborne unveil a temporary loan scheme to support public private partnership projects reach financial close. The temporary lending programme will be available for 12 months and will see the government provide loans on commercial terms to PPP projects that lack funding, where the government can remain a minority provider of funding.

A Treasury spokesperson said there are £6bn of PPP schemes in the pipeline for the next twelve months that could be helped by the scheme. The announcement is separate from the government’s end-to-end review of PFI, also due to report soon, but the Treasury confirmed the loans will be available for PFI schemes. Projects will again apply to IUK for inclusion in the programme.

In addition to infrastructure projects, the money will also be available for housing, health and education projects.

In a statement issued in advance of the announcement, Osborne said ‘UK Guarantees’ will use the government’s “hard won fiscal credibility” to provide public guarantees of up to £50bn of private investment in infrastructure and exports. He said: “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.”

Speaking on Radio 4 Today show this morning, chief secretary to the Treasury Danny Alexander said the plan would make “a very big difference”,

“What we’re now facing is a situation where there are many major infrastructure projects in the pipeline, in the private sector, which are facing financing problems because of he stressed conditions in funding markets.

“In many cases this sort of guarantee could help them get the finances they need in place quickly and get the project going, [and] will make the difference between getting the project going quickly, and it not happening for a while until the funding situation is sorted out.

“I think it will make a big difference in that respect, in energy projects, in transport projects, utility projects too.

However, Alexander would not give examples of the type of projects the scheme would help.

He said: “I’m not going to give you examples now, because what we’re doing is making the guarantees available, and it would be wrong to set out and name individual projects until such time as we’ve reached an agreement with those projects.

“We think that based on our national infrastructure plan, which set out a pipeline of 500 projects of national significance, that there were about £40bn worth of projects in the pipeline which could potentially benefit from this scheme.”

He added: “This is not about spending new money; this is about using the strength of the Government’s balance sheet, the credibility that this coalition government has established in our public finances over the last two years, in service of getting economic activity going and the service of getting big infrastructure projects delivered.”

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