The National Audit Office is calling on the Treasury to be rigorous and objective in assessing whether government guarantees for new UK infrastructure projects are genuinely needed and the projects are likely to bring significant public value.
This study examines the risks to value for money associated with guarantees for infrastructure projects, and how HM Treasury manages taxpayers’ exposure to the risk.
The value of lending to new UK infrastructure projects halved from £6 billion before the financial crisis to £3 billion in 2010. In October 2012 the Infrastructure (Financial Assistance) Act became law, allowing government to issue guarantees to projects meeting a broad definition of infrastructure, spanning energy, transport, health, education, courts, prisons and housing. The UK Guarantees scheme (the Scheme) is designed to avoid delays to investment in UK infrastructure projects that may have stalled because of adverse credit conditions and provides a sovereign-backed guarantee to help projects access finance. HM Treasury (the Treasury) also aims to attract new sources of finance into infrastructure projects, such as pension and institutional investors.
The Scheme is operated by a team of experienced commercial specialists within Infrastructure UK, a unit within the Treasury and is open to applications from infrastructure projects in the public and private sectors. The Scheme enables the Treasury to issue an unconditional and irrevocable guarantee to the lenders to infrastructure projects ensuring that scheduled interest and principal payments will be paid in full, irrespective of project performance. This transfers project risk to government, and ultimately taxpayers, in return for a fee (Figure 1, overleaf). The Scheme provides stronger protection to lenders than comparable European state schemes, which provide credit enhancement but not a full sovereign guarantee of principal and interest
InfraDeals data was used in the report, which can be found here.