Government guarantees £40bn infrastructure investment

18 Jul 12
Major infrastructure projects are to be backed by up to £40bn of funding guarantees to boost investment in transport, energy and communications developments, the government has announced today.

By Richard Johnstone | 18 July 2012

Major infrastructure projects are to be backed by up to £40bn of funding guarantees to boost investment in transport, energy and communications developments, the government has announced today.

Chancellor George Osborne said the proposal to underwrite funding would help kick start schemes that may have stalled because of adverse credit conditions. Applications open today for the guarantees, which can then be used to help access private finance. The first guarantees are likely to be awarded in the autumn,

Osborne said the ‘credibility the government has earned through tackling the deficit’ will be used to back nationally important schemes.

‘UK Guarantees will use that hard-won fiscal credibility to provide public guarantees of up to £40bn of private investment in infrastructure and exports,’ he said.

The projects will need to be able to demonstrate that the guarantees will enable them to secure finance within a reasonable timeframe. Eligible projects will be subject to charges and due diligence and must meet five criteria. These include the requirement that the project is nationally significant’, ready to start construction within 12 months of a guarantee being given, and financially credible, with some equity finance already committed from other sources.

The form each guarantee will take will be decided on a case-by-case basis.

Also today, a temporary lending programme has been launched to provide further funds to ensure public-private partnership infrastructure projects can go ahead. An estimated £6bn worth of schemes due to proceed in the next 12 months could be eligible for loans, covering transport, health, housing and education sectors.

Although PPP projects currently raise all of the required project debt from the private sector, the government says it is making credit available for the first time as an ‘exceptional response’ to the current market conditions.

Today’s announcement forms part of the government’s attempt to make use of the Treasury’s balance sheet to back investment programmes, which also include the National Loan Guarantee Scheme and the Funding for Lending scheme.

A major £5bn export refinancing facility will be made available later this year to support British exporters.

Chief secretary to the Treasury Danny Alexander added: ‘The measures we’re announcing today will help work get started on many important infrastructure projects and help our major exporters, providing lasting benefits for thousands of people and a significant boost to the economy.

‘This is yet another example of the coalition working together to put its hard-earned economic credibility to work to increase growth.

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