At a recent discussion staged by Infrastructure Investor at the Houses of Parliament, John Healey, the Labour MP, called for the coalition government to make more use of the UK Guarantees Scheme (UKGS). The discussion brought together leading politicians, investors and advisers.
The scheme was introduced in July 2012 as a way of helping to speed up the flow of infrastructure deals that might benefit the economy. It involves the government using its balance sheet to underwrite projects that investors such as pension funds might otherwise see as too risky.
Only one project so far – Drax power station – has received a guarantee. “I was one of the first and few in my party to welcome the borrowing guarantees,” said Healey. “But one in 15 months isn't good enough. Can we please get more signed?”
In October, the government announced details of 13 energy, transport and education schemes that had pre-qualified for a total of £33 billion (€40 billion; $54 billion) in guarantees in the event that they are unable to attract financial backing by other means.
However, the slow progress of the scheme has attracted criticism. Reference to the scheme may be included in this Thursday’s Autumn Statement (an update on government taxation and spending plans).
At our discussion, Danny Alexander MP – the UK’s Chief Secretary to the Treasury – suggested that the offer of government backing is in itself sometimes enough to trigger private capital support (and hence the usefulness of the scheme sometimes goes unseen).
Healey said discussions that brought together politicians and investors were useful as a way of “teasing out the tensions, recognising that you need to combine the social and economic purpose of infrastructure with the requirement for investors to deliver a certain level of margins and returns”.
He said investors had a heightened need to understand the motives of politicians today.
“The world changed post-GFC and so have government fiscal pressures,” he pointed out. “As a result, politicians are now making some of the big calls in infrastructure – bigger than they did previously.”
Healey was the UK’s Shadow Health Secretary from October 2010 before standing down a year later. He was previously Shadow Minister for Housing and Planning, Minister for Housing and Planning and Housing Minister.
A full summary of our Westminster discussion may be found here.