Infrastructure plan: UK to guarantee investments

George Osborne, "There are real things happening in our economy"

The government is to underwrite up to £40bn of investment in infrastructure to try to lift the economy.

Chancellor George Osborne said the UK Guarantees scheme would help release private sector funds and kick-start schemes which have stalled due to problems raising funds.

An additional £10bn of guarantees would be earmarked to support struggling UK exporters, he said.

However, Labour said the proposals "do not go far enough".

"There is no guarantee that government-backed loans will see any infrastructure projects going ahead in the next year which wouldn't have happened anyway," said shadow chief secretary to the Treasury, Rachel Reeves.

The news follows a report earlier this week from the International Monetary Fund (IMF) which sharply cut its growth forecast for the UK economy this year from 0.8% to just 0.2%.

Infrastructure investment

Under the scheme, up to £40bn of funding will be underwritten for infrastructure projects that have been put on hold following difficulties in raising money from private investors.

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To qualify, a project has to be perfect in every possible respect, but somehow not quite perfect enough to get up and running entirely on its own”

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The government will charge for finance for the projects, which could be in a range of sectors, including transport, energy, communications, and education.

Those seeking the money will have to meet criteria including being able to begin work within 12 months.

They will also have to prove the project will have a positive impact on economic growth, as well as provide good value for taxpayers.

BBC economics editor Stephanie Flanders said it was possible that not many infrastructure projects would qualify for the funding, because of the conditions attached.

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This is a long-term investment measure which is good news, but we also need some shorter-term measures to help people right now”

End Quote Kayte Lawton IPPR

"As well as jumping through all these hoops, to qualify for the partial guarantee (which will be tailor-made for each project) the backers must also be able to demonstrate that they definitely would not be able to go ahead without this carefully delineated government support," our corresondent says.

"In other words, it has to be a perfect project in every possible respect, but somehow not quite perfect enough to get up and running entirely on its own."

John Cridland, the head of the employers' body the CBI, has recently been critical of lack of government action to try to stimulate growth. He welcomed the UK Guarantees scheme.

"We're talking here about the really big projects, in transport, in energy, in communications, to do with our water and our waste industry. These strengthen the national economic assets," he told BBC News.

"Small businesses will invest in new plant and new sales operations in different parts of the country, if the national infrastructure is better."

Chief Secretary to the Treasury Danny Alexander said the scheme would not be a drain on the public purse: "This is not a direct call on the taxpayer. That would only happen if something went wrong with a project."

Starting work

The government hopes the first guarantees will be made in the autumn.

But Kayte Lawton, senior research fellow at the Institute for Public Policy Research, said most of the benefit from the scheme would not filter into the economy for several months.

"That will be quite a long time to have to wait for people who have already been out of work for 12 months or a year.

"So I think this is a long-term investment measure, which is good news, but we also need some shorter-term measures to help people right now."

The government is also planning to help the private sector by providing £6bn to about 30 projects planned under Public Private Partnership (PPP) arrangements.

These schemes get all their initial funding from the private sector but some are struggling to get off the ground because of difficulties in securing funding.

Mr Osborne and Mr Alexander also announced a £5bn export refinancing facility to be launched later this year.

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