The Government will underwrite up to £50 billion of investment in UK infrastructure and exports, under plans unveiled by George Osborne today.
The Chancellor said he was using the coalition's "hard won fiscal credibility" to free up private sector funds and kick-start the economy.
The initiative comes amid pressure on ministers to support the UK by loosening the purse strings.
Earlier this week the IMF again cut the country's growth forecasts to just 0.2% for 2012. However, the move is likely to fuel criticism that the British taxpayer is taking on liabilities that the private sector considers too risky.
What the Government is announcing today:
- Under the UK Guarantees scheme, up to £40 billion of funding will be underwritten for critical infrastructure projects that have stalled due to difficulties raising money from private investors.
- The Government will charge for helping secure finance for the projects, which could be in sectors such as transport, energy, communications, and education.
- Applicants will have to meet criteria including being ready to start construction within 12 months, having a positive impact on economic growth, and giving good value for the taxpayer. The first guarantees are expected to be made in the autumn.
- The Government will also step in to ensure major Public Private Partnership (PPP) projects are not delayed. PPP schemes get all their up-front funding from the private sector.
Mr Osborne said of the plans:
The credibility the Government has earned through tackling the deficit is already helping millions of British families and businesses through keeping down the cost of borrowing.
Now 'UK Guarantees' will use that hard won fiscal credibility to provide public guarantees of up to £50bn of private investment in infrastructure and exports.
Britain's credibility has been hard won and involved difficult decisions, so I want to make sure its benefits are passed on to the whole economy.
Shadow chief treasury secretary Rachel Reeves said the proposals did "not go far enough":
With Britain in a double-dip recession because of the Chancellor's failed policies, anything which helps to get the economy moving again is welcome. But these proposals do not go far enough.
There is no guarantee that government-backed loans will see any infrastructure projects going ahead in the next year which wouldn't have happened anyway.
And they will not reverse the damage done by two years of deep cuts to long-term projects like house building and the school building programme which have seen a collapse in the construction sector.
- Read our Economics Editor Richard Edgar's blog on the Government's announcement today: George Osborne unveils another 'big bazooka'.