Chancellor George Osborne today unveiled plans to use the coalition's "hard won fiscal credibility" to free up private sector funds and stimulate economic growth.
This decision to underwrite selected UK infrastructure projects comes in the face of poor economic forecasts from the International Monetary Fund which yesterday cut the UK’s growth forecasts to just 0.2% for 2012.
Under the new UK Guarantees scheme Mr Osborne pledged that up to £40bn of funding will be underwritten for critical infrastructure projects that have been put on hold due to difficulties experienced in securing money from private investors. A further £6bn will be lent to projects as an “exceptional response to difficult market conditions” in 2013.
The news was welcomed by manufacturer’s organisation EEF as a vital element for an effective national growth strategy.
Terry Scuoler, chief executive of EEF, said “Today’s announcement is a step in the right direction and shows that the government is looking at creative ways to deliver [growth].”
However, Mr Scuoler cautioned: “Time is now tight and we need to get shovel ready projects up and running as soon as possible. If schemes such as this fail to deliver timely results, the government will need to look again at its spending priorities.”
CBI director-general John Cridland agreed, saying the scheme marked “a big step towards unlocking the £250 billion of investment needed to renew our national infrastructure” but suggesting that “A combination of direct lending and loan guarantees” was needed to make the UK’s infrastructure assets more attractive while protecting its fiscal position.
Strict criteria will have to be met by private sector organisations bidding for finance guarantees including the ability to begin construction within 12 months as well as being able to prove that their project will have a positive impact on economic growth and give good value for the taxpayer.
Government will charge for helping to secure finance for the projects. Priority areas are sectors such as transport, energy, communications, and education and the first guarantee commitments are expected to be made this autumn.
Mr Osborne and treasury chief secretary Danny Alexander also announced today that a £5bn export refinancing facility would be launched later this year.
The sectors likely to benefit most from this scheme include aerospace, oil and gas extraction equipment, transport and telecommunications infrastructure services, and hospital construction and management services.