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Ministers should use public funds to raise the credit ratings of infrastructure projects by guaranteeing part of the risk, potentially unlocking billions of pounds in private investment, business leaders say.

The CBI employers’ group is pressing for action amid frustration at the government’s failure to get transport, water, energy, waste and other projects moving, six months after George Osborne, the chancellor, declared his support for infrastructure investment in the autumn statement.

John Cridland, director-general, said the coalition’s growth strategy needed “more oomph”, and the CBI believes infrastructure is the best way to get it. The organisation argues that infrastructure spending has a multiplier effect whereby every £1 spent on construction boosts the economy by nearly £3.

It wants the government to embrace “credit enhancement”, in which the taxpayer would underwrite selected projects through contingent liabilities, a form of guarantee, which would raise their credit rating above investment grade triple B-.

The Treasury is believed to be thinking along similar lines as it tries to make good a pledge by David Cameron, prime minister, and Nick Clegg, his deputy, on leveraging the state balance sheet to deliver a “massive” increase in investment in infrastructure and housing.

Under one variant of the CBI proposal, known as “second loss credit enhancement”, the government would offer a minority share of the funding but place itself lower in the ranking of creditors in case of a loss.

So, in a public-private partnership where senior debt was 85 per cent of the total funding requirement, the government would guarantee around 10 per cent – the first tranche to be affected if there were losses. That would allow the credit rating on the remaining 75 per cent to rise, making it more attractive to investors.

Under a second variant, the government could step in to offer funding to a project above the level to which banks or the bond market were willing to go.

Mr Cridland said the scheme would not put the UK’s triple A sovereign credit rating in danger because the private sector would still be taking most of the risk.

In its report, the CBI also floats the idea of a five-year dividend tax credit for pension funds that invest in new projects.

The CBI sees its proposals as a way of using the £50bn public money the Treasury has pledged for infrastructure in its spending plans to unlock £250bn needed to fund the 500 projects in the national infrastructure plan over the next few years.

Mr Cridland said the priority should be projects already well developed, including road schemes such as widening the congested A14, which ferries cargo from the Midlands manufacturing base to Felixstowe docks in Suffolk.

The infrastructure plan also includes the £16bn first phase of the High Speed 2 rail link from London to Birmingham, the £4bn Thames tunnel sewerage project and £22bn in investment for water infrastructure.

“If we can capture just a fraction of the £1.5tn of capital held in UK pension funds, and invest a further 2 per cent of their total assets in infrastructure, this would make a huge contribution to renewing our energy, transport and other infrastructure,” Mr Cridland said.

Copyright The Financial Times Limited 2017. All rights reserved.
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