By Vivienne Russell | 28 January 2015
The Treasury needs to undertake a rigorous assessment of its UK Guarantees programme to determine whether government underwriting is necessary in all cases and work out if the projects will deliver public value, auditors have said.
Under the scheme, the Treasury assumes the risk faced by lenders in return for a fee. It promises to repay lenders in full and on time, regardless of the project’s performance. Once guarantees have been issued they cannot be withdrawn nor can the fee be changed if risks or prices alter.
The National Audit Office said today that, while the scheme can help to progress some significant infrastructure projects, eligibility criteria were not strictly applied and no tests were carried to determine whether a guarantee is strictly necessary.
‘For example, the Treasury supported one £8.8m project (to install energy saving lighting in 150 car parks) that is of a scale that cannot reasonably be described as meeting a "nationally significant” test,’ the watchdog noted.
It added that it was not confident that the benchmarks used to measure risk to the taxpayer were sufficiently reliable or complete.
‘The Treasury takes a narrow view that guarantees are value for money if the fee covers the risk,’ said NAO head Amyas Morse.
‘It is good that Treasury has a formal governance process and commercial specialists to help evaluate, manage and set a price for risks to the taxpayer. However, we question whether this approach can measure long-term risks to taxpayers reliably.’
He urged the Treasury to ensure it was ‘rigorous and objective’ in ensuring guarantees are genuinely needed and examining whether projects bring public value.
The UK Guarantees scheme was introduced in 2012 at a time of adverse credit conditions. To date, the Treasury has guaranteed £1.7bn of finance across eight projects and deemed a further 39 projects worth £34bn as eligible for support.
UK Guarantees can support up to £40bn in finance and is set to close in 2016.
Responding to the report, a Treasury spokesman said: ‘The Treasury has full confidence that the projects that receive a UK Guarantee are sound investments, and that the scheme remains an important tool in attracting new finance into key infrastructure projects. All projects receiving a guarantee are rigorously assessed to ensure the taxpayer is protected.’
The Treasury added that projects are put through a ‘very rigorous’ process of due diligence, similar to that applied in the private sector, which can take up to several months. It pointed that, of over 200 inquiries, only 59 have been pre-qualified and only 8 approved for a guarantee.
