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Danny Alexander urges projects to seek UK Guarantees and defends PF2

The chief secretary to the Treasury has defended the government’s decision not to update its construction pipeline ahead of next month’s spending review, while making a plea for projects to seek UK Guarantee backing.

Danny Alexander was speaking at the Association for Consultancy and Engineering’s centenary conference in London yesterday, where he defended the lack of construction pipeline updates which has seen it shrink from £30.3bn in November 2012 - when it was last updated - to £19.2bn for May 2013.

Asked by Construction News whether the lack of updates indicated a move to cull projects in next month’s spending review, Mr Alexander said it was about “prioritising projects and delivering as much as we can”.

“I don’t think the industry should have that worry at all, but we have to prioritise the investment that we make…that will make a difference to the economy. That should be a process that is welcomed, rather than a matter of concern,” he added.

Mr Alexander said the review, to be set out on 26 June, would be a “zero-based review of capital spending” that would help to provide certainty and government support that the industry had been calling for.

His comments came after the International Monetary Fund’s deputy managing director David Lipton called on the government to bring forward planned capital spending and boost infrastructure.

Mr Lipton was quoted by various media as having said “It would be, in our view, useful for the economy for infrastructure and other measures to be brought forward to reduce the drag of austerity measures… and provide more support for the economy” in response to journalists questions.

The IMF also said that while Help to Buy, the new scheme announced by the government at the Budget, might “temporarily boost confidence in the Housing market”, there was a risk it could lead to increases in house prices, so the government should consider fiscal disincentives for holding land without development.

It added that to accelerate infrastructure, more authority over planning decisions should be devolved to local authorities.

Meanwhile, when asked about the PF2 model at the ACE conference, Mr Alexander said the new form of private finance is a “significant improvement on the previous model in terms of dealing with some of the criticisms of PFI.”

He said it had helped to make it more cost efficient and pointed to its use on the Priority School Building Programme (where it will provide £700m worth of schools rather than the planned £2bn investment) and added that there are “other projects in other departments being considered”.

However he stressed that PF2 was “one of a number” of finance solutions on the table to help deliver significant projects.

Mr Alexander also revealed that members of the National Infrastructure Plan Strategic Engagement Forum (NIPSEF) will shortly meet with a cabinet committee on infrastructure that he chairs.

It has heard recently from CBI director-general John Cridland, who told the conference yesterday that businesses feel that investment for major transport and energy is “on pause”.

Mr Cridland said: “After two years of encouraging policy announcements, we’re simply not seeing the expected flow of projects materialise. Despite some progress, too often businesses and investors, and indeed government are caught in still caught in a frustrating cycle of waiting on each other…

“Business welcomed last year’s autumn statement’s shift from current to capital spend and the action in the Budget on funding housing - but funding is only half the battle.

“Given that over three-quarters of the National Infrastructure Plan will be funded by the private sector, business needs government to make decisions. This is a story of implementation.”

He added: “Investors are waiting for contractors to initiate projects, contractors are waiting for government decisions, and ministers are trying to attract investors – and everyone is frustrated.” 

Mr Alexander stressed the government’s desire for all types of projects to enter into negotiations on UK Guarantees, and added that it was willing to guarantee construction risk, loan rates, private finance, corporate borrowing or provide backing for institutions including universities seeking credit ratings.

He said formal negotiations for a UK Guarantee for the £700m Drax biomass power station project in Selby, exclusively revealed by Construction News in December 2012, took just six weeks from start to finish, and that he believed there was a perception in the market that the Treasury would “make it hard to access guarantees” which he said was incorrect.

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