UK Guarantee Scheme for infrastructure
UK Guarantees is a government scheme designed to kickstart crucial infrastructure projects. It takes the form of an unconditional and irrevocable financial guarantee from the Treasury to lenders that they will be repaid in full and on time for their investments in infrastructure projects, regardless of the project performance.
The scheme was introduced in 2012 because of adverse credit conditions, with the aim of avoiding investment delays which could risk the stalling of infrastructure projects.
With the Treasury acting as guarantor, the Scheme covers a range of different underlying borrowing structures, from project financing to corporate lending in support of infrastructure. The level of risk is determined by an internal Treasury Risk Committee.
Despite market conditions improving since 2012, the Chancellor announced in the Autumn Statement 2016 that the Scheme’s availability would be extended to at least 2026.
The Treasury, in providing guarantees, uses a test that the guarantee fee must represent a market price for the risk, rather than considering the project’s overall value for money. This has caused some, such as the National Audit Office, to raise concerns about the rigorousness and objectivity in assessing whether guarantees for new infrastructure projects are genuinely needed, and whether the public value they are likely to bring will be significant.
You can see a table listing the status of projects on the UK Guarantees Scheme here.
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