--Government scheme available for around GBP50 billion
projects
--In three parts including GBP6 billion pipeline due to proceed
in the next 12 months
--Experts question extent of projects that will qualify for the
guarantees
(Adds comment, background.)
By Ainsley Thomson
LONDON--U.K. Chancellor of the Exchequer George Osborne will
announce Wednesday his latest plans to stimulate the recession-hit
U.K. economy that will see government guarantees provided on around
GBP50 billion ($78 billion) of private investment in infrastructure
projects and exports.
The plan, called U.K. Guarantees, is designed to use the
strength of the public sector balance sheet to accelerate major
infrastructure projects that have stalled because of difficulty
accessing private finance under the tough credit conditions.
"Britain's credibility has been hard-won and involved difficult
decisions, so I want to make sure its benefits are passed on to the
whole economy," Mr. Osborne is expected to say when he unveils the
plan in London Wednesday, according to a transcript of his
announcement speech.
The use of state guarantees is one of the few measures the
government can use to stimulate the economy that doesn't affect its
primary goal of tackling the budget deficit.
As the economy, which fell back into recession in the first
quarter, continues to deteriorate, the government has come under
increasing pressure from opposition lawmakers, along with some
business groups and economists, to ease its aggressive austerity
measures.
But Mr. Osborne and the government have vowed to stay the course
on their plans to eliminate the country's structural budget deficit
over the next five years, which means their credibility may be
dented if the pace of the spending cuts is slowed or if the country
borrows more to instigate a tax break.
As a result, the government is hamstrung in the measures it can
use to boost growth.
Crucially, the use of the government guarantees doesn't add to
the U.K.'s budget deficit because the guarantees are regarded as
"contingent liabilities," liabilities that may or may not be
incurred in the future, and are not included on the national
accounts.
The U.K. Guarantees plan comes after the Treasury and Bank of
England launched a joint initiative last month to offer U.K. banks
unprecedented access to central bank funds if they vow to keep
lending to households and businesses. It's hoped the plan, called
funding for lending, will result in an extra GBP80 billion of
credit flowing into the economy.
In addition, the government is expected to announce plans to use
government guarantees to help the housing sector in the coming
weeks.
The coalition government has made no secret of the fact that it
views the U.K.'s creaking infrastructure as a major impediment to
the country's future economic prosperity.
The project Mr. Osborne will announce Wednesday will potentially
kick-start around GBP40 billion of infrastructure projects in a
range of sectors including transport, utilities, energy and
communications.
In order to be eligible for the government guarantees, projects
must be ready to start construction within 12 months from the
guarantee being given. The projects must also be financially
credible and be of good value to the taxpayer, the Treasury
said.
A Treasury official said the specific nature of the government
guarantee would vary between projects.
Mr. Osborne will also announce a new temporary lending program
to help major infrastructure projects that combine both public and
private investment, but that are struggling to secure the required
amount of private lending to go ahead.
The Treasury said an estimated GBP6 billion worth of
public-private projects are due to proceed in the next 12 months
that could be eligible for the program.
The final component of the U.K. Guarantees plan is a GBP5
billion exports-refinancing facility to provide long-term loans for
overseas buyers of U.K. exports at competitive rates by
guaranteeing a series of short-term bank loans
Industry experts questioned how many projects would benefit from
the scheme because of the criteria that have to be fulfilled to get
access to the funds.
"Infrastructure fund managers claim that banks, especially the
government-owned ones like RBS and Lloyds, are quite willing to
provide finance for infrastructure projects already," said Stephen
Peters, Investment Trust analyst at Charles Stanley.
"And even if government money is accessed under the scheme it is
unclear how this will affect the interests of existing debt holders
and the equity shareholders," he added.
The Government is also sketchy on details of the guarantees it
will give--the usual attraction of any Private Finance Initiative,
PFI, or Public Private Partnership, PPI, is that its operators
provide a steady return generated from inflation-linked,
government-backed revenue.
"We need more detail on what this GBP40 billion pipeline of
projects ready to go comprises--as far as I am aware there is no
paralysis in lending for projects," said Giles Frost, director of
listed infrastructure fund International Public Partnerships Ltd.
(INPP.LN).
"It may include more risky projects, such as nuclear power
programs, which many managers wouldn't invest in," he added.
(Marietta Cauchi in London contributed to this article.)
Write to Ainsley Thomson at ainsley.thomson@dowjones.com
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