Finance: Loan Guarantee Scheme — Question

– in the House of Lords at 2:52 pm on 24th July 2012.

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Photo of Lord Barnett Lord Barnett Labour 2:52 pm, 24th July 2012

To ask Her Majesty's Government how the loan guarantee scheme, announced in a Written Statement by Lord Sassoon on 18 July, will work.

Photo of Lord Sassoon Lord Sassoon The Commercial Secretary to the Treasury

My Lords, under UK guarantees the Government aim to kick-start major infrastructure projects that may be struggling to access private finance. Eligible projects will be subject to a detailed assessment process and the Government will conduct and consider the most effective form of guarantee based on the specific project risks. The Government have wide discretion over how a guarantee is structured, subject to the terms and dynamics of each individual project. The guarantees could cover key project risks such as construction, performance or revenue risk.

Photo of Lord Barnett Lord Barnett Labour

I thank the Minister, although his Reply might have been better as an Oral Statement. I welcome the infrastructure plan. However, with the Prime Minister talking about a 10-year austerity programme and with growth likely to indicate tomorrow that we are in a triple-dip recession, is that not one of the reasons why even companies with 100% guarantees will not want to borrow money? That applies to the main scheme and even the PPP. No one should be surprised. The Prime Minister originally said that the plan would come into force in 2014 at the earliest but, given the economic background, do we not need it now, not in 2014? In those circumstances, could he suggest to the Chancellor that he consider a quadruple U-turn and find a little cash to help kick-start the infrastructure plans, which are so welcome?

Photo of Lord Sassoon Lord Sassoon The Commercial Secretary to the Treasury

My Lords, I am very happy to correct the noble Lord, Lord Barnett. Some £40 billion of projects in the national infrastructure plan that are due to start construction before 2015 could well be eligible for guarantees under the scheme. We are inviting applications for guarantees now and, subject to legislation, we hope to have the first guarantees granted this autumn, so this is absolutely not something that waits till 2014. It is because of the strength of the national balance sheet and the fiscal retrenchment that we are able to come forward with a £40 billion scheme that starts this autumn.

Photo of Lord Wigley Lord Wigley Plaid Cymru

My Lords, will the Minister confirm that this scheme will extend to Wales, Scotland and Northern Ireland? That being so, will he confirm that there were discussions with the three Administrations before the announcement was made?

Photo of Lord Sassoon Lord Sassoon The Commercial Secretary to the Treasury

I can confirm that the scheme will extend to the devolved Administrations.

Photo of Lord Sharkey Lord Sharkey Liberal Democrat

Is there is anything about the design of the loan guarantee scheme that makes it more likely that funding to SMEs, particularly those in deprived areas, will increase?

Photo of Lord Sassoon Lord Sassoon The Commercial Secretary to the Treasury

My Lords, the £40 billion infrastructure guarantee scheme is linked to nationally significant infrastructure projects. Typically, the promoters of those projects will not be SMEs, but of course there will be very many SMEs in the supply chain for the projects that will benefit. SMEs working in the public/private partnership space will also benefit from a possible £6 billion of additional loans that was also announced in this package, as will exporters, for whom a £5 billion export refinancing facility will be extended.

Photo of Lord Peston Lord Peston Labour

My Lords, it is obvious that this loan guarantee scheme must involve immense risk because if there were no risk involved, the guarantee would not be required. How will the costs of meeting those risks enter into the public accounts, or will the Government try to fiddle the figures so that they do not eventually appear as public expenditure?

Photo of Lord Sassoon Lord Sassoon The Commercial Secretary to the Treasury

My Lords, there will be no fiddling of the numbers by this Government on this or anything else. The position is very straightforward: the financing markets for these projects are extremely difficult but there good projects are coming forward in the pipeline, and the beauty of the scheme is that we can use the strength of the government balance sheet. To answer the technical question, the infrastructure guarantees will be financial transactions and will have no impact on PSNB. A project would have an impact on PSND only if there was a non-negligible expected loss, which is not something that we anticipate. The guarantees will generally count as contingent liabilities, and that is very clear.

Photo of Lord Elystan-Morgan Lord Elystan-Morgan Crossbench

My Lords, may I gently tempt the Minister to answer the second question asked by my noble friend Lord Wigley? I take it that there was no consultation. Why was that? Was there an intention to show contempt for the views of the devolved Administrations or did the Government just not think about it? What is the answer, please?

Photo of Lord Sassoon Lord Sassoon The Commercial Secretary to the Treasury

My Lords, we have come forward with a very positive financing package to help our infrastructure providers and our exporters. I believe that that will be welcomed very widely, as it has been, by business organisations. I hope that it will be welcomed by the devolved Administrations; as I have said, it extends to them.

Photo of Lord Davies of Oldham Lord Davies of Oldham Shadow Spokesperson (Transport), Shadow Spokesperson (Treasury), Shadow Spokesperson (Wales)

My Lords, of course we welcome this scheme but, as my noble friend Lord Barnett indicated, this is in the context of the UK being in a double-dip or, as he suggested, triple-dip recession. We certainly are the only country in the G20 apart from Italy that is in recession. This modest scheme is welcome. Will the Minister explain, therefore, why the Government axed the similar scheme to support public/private partnerships put forward by the Labour Administration in 2009?

Photo of Lord Sassoon Lord Sassoon The Commercial Secretary to the Treasury

My Lords, again, I am happy to put the record straight. The noble Lord, Lord Davies of Oldham, may not have noticed that this package includes £6 billion worth of facility available to public/private partnership projects that are ready to start in the next 12 months.

Photo of Baroness Farrington of Ribbleton Baroness Farrington of Ribbleton Labour

My Lords, would the Minister care to help the House by confirming or denying that there were discussions with the relevant Administrations in advance of the scheme being announced-and not announced to Parliament?

Photo of Lord Sassoon Lord Sassoon The Commercial Secretary to the Treasury

I cannot confirm or deny it. All I say is that this is good news for the whole of the United Kingdom and has been widely welcomed.