Taxpayers could be made to foot the bill for substantial losses from government guarantees on infrastructure projects, the National Audit Office warns.
The government has offered guarantees on the construction phase of infrastructure projects in a bid to attract investment. Institutional investors have traditionally been wary of investing in certain infrastructure projects due to concerns over construction risk, despite the long-term returns generated by the asset class.
However a report by the NAO warned that while government guarantees might attract new sources of finance it could also expose the taxpayer to increased financing risk if costs overrun.
NAO head Amyas Morse said: “Economic infrastructure keeps the country running. Demand for infrastructure is set to increase, fuelled by population growth, technological progress, climate change and congestion.
“But there is a lot at stake in taking forward the national infrastructure plan in an environment of straitened resources, with real risks to value for money and uncertainty about the sustainability of piling costs on to consumers.
“I have made a number of recommendations which look to the Treasury, departments and regulators to provide greater clarity on the costs which taxpayers and consumers will bear. Work is already in hand to drive down the costs of delivering new infrastructure and this should continue.”
The NAO has made a series of recommendations to help achieve value for money and has called for the Treasury to work with departments and regulators to provide greater clarity regarding the financial impact of planned infrastructure investment. Where there are limits on affordability and availabilityof finance, the NAO argues the Treasury and departments may need to” refine their prioritisation” of infrastructure projects.
The warning comes after the Treasury signed a memorandum of understanding with the National Association of Pension Funds and the Pension Protection Fund in 2011 to launch the Pensions Infrastructure Platform.
The PIP intends to target projects free of construction risk and on an availability basis to avoid excessive GDP risk with fees around 50 basis points. The fund will be seeking long-term cash returns of RPI +2-5%.
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