Clegg pledges ‘financial guarantees’ for major projects

The government will offer financial guarantees to developers of infrastructure and housing projects as part of a plan to drive growth in the economy.

Deputy Prime Minister Nick Clegg told the Financial Times it was the government’s “absolute priority” to use its own balance sheet to inject credit into the economy.

He said the programme would “amplify” the principles behind its credit easing scheme, which is designed to support £20bn of lending to small businesses.

The policy, which the FT reports was agreed by senior ministers, including the prime minister, earlier this month, is part of wider attempt to switch rhetoric away from austerity and towards driving growth.

David Cameron first signalled the move in his speech on the economy to the Institute of Directors last week.

Under the scheme, the government’s contingent liability would only become a debt if the guarantee was ever called in. It builds on the government’s existing credit easing scheme, which aims to lower interest rates by 1 percentage point by guaranteeing up to £20bn of small company borrowing.

Richard Threlfall, KPMG head of infrastructure, said state guarantees could slice 2-3% of the cost of finance and the measure was “exactly the approach Treasury should be looking at”.

“It makes a huge amount of sense and I’ve never understood why the Treasury has been so reluctant to uses its guaranteeing powers in this sort of way as at the end of the day it doesn’t cost them anything.

“The government has got no money and the economy is struggling so the best way out is to use some form on non-monetary support mechanism.”

However, he said that Treasury would likely remain cautious:“I expect they will be very, very selective about which projects are eligible – it will be case by case and quite bespoke”.

It is expected the scheme will be in place by the autumn statement, but Threlfall said the extent of it would be likely determined by who wins the argument between Number 10 and the Treasury.

“It will be tug of war between Number 10’s desire to get the economy moving and Treasury’s fiscal prudence.  We shall see who wins,” he said.

“But if austerity is all about keeping our Triple-A credit rating, then we might as well put that rating to use.”

Clegg’s comments came as the International Monetary Fund issued a call for the UK to stimulate growth with lower taxes and interest rate cuts.