UK Chancellor Philip Hammond has outlined his plans for UK infrastructure financing after the country exits the European Union.
Although he described the European Investment Bank as “an important source of funding for infrastructure investment”, the staunch EU-supporting Conservative said the UK “cannot take chances” that EIB funding will remain after the UK leaves the bloc at the expected date of March 2019.
However, while the negotiations – which formally began this week – continue, Hammond said the UK is in talks with the EIB on continuing to provide finance while it remains a member and is also exploring a possible relationship post-2019.
“I want that access to EIB funding to continue while we are members of the EU on equal terms, so I am engaged with the EIB and will provide the assurances it needs to sustain the flow of EIB and European Investment Fund funding to UK businesses and projects,” he said. “In the long term, it may be mutually beneficial to maintain a relationship between the UK and the EIB after we leave the EU. And we will explore the options together.”
Hammond also revealed ways to boost infrastructure projects in the absence of the EIB, including a broadening of the current guarantee scheme to offer construction support as well. The current version of the programme, introduced in 2012 and extended to 2026 by Hammond last year, guarantees lenders will be repaid in full, although it has been criticised by the National Audit Office.
“We’ll consider other credit enhancement tools, such as first-loss guarantees, to reduce the financial risk that complex projects face,” he added.
The measures drew praise from Michael Watson, global head of finance and projects at law firm Pinsent Masons, for seeking to maintain the “critical role” the EIB currently plays in UK infrastructure.
“It is to be welcomed that the focus will be on construction guarantees and first-loss debt – both areas where an increased focus should accelerate the throughput of projects to a stage that they are fully investable and attractive to a wider range of lenders and investors,” he said.
The EIB provided £5.5 billion ($7 billion; €6.3 billion) to UK infrastructure last year, a slight dip on the £5.5 billion in 2015 but supporting a record number of projects. The EIB has over £1.8 billion of funding towards projects in the UK currently under appraisal.