It is normal practice when a Government Department proposes to undertake a contingent liability in excess of £300,000, and for which there is no statutory authority, for the Minister concerned:
To present a departmental minute to Parliament, giving particulars of the liability created and explaining the circumstances; and
To refrain from incurring the liability until 14 parliamentary sitting days after the issue of the minute, except in cases of special urgency.
I am writing to notify Parliament of a contingent liability that the Treasury intends to create related to the final stage of the establishment of the UK Infrastructure Bank as a publicly owned company with operational independence.
As set out in the UKIB policy design document published at Budget 2021, in UKIB’s framework document and most recently in UKIB’s strategic plan published last month, the ambition is for UKIB to offer sovereign equivalent guarantees to support and enable private and public investment in infrastructure, with core objectives to help tackle climate change and support regional and local economic growth.
UKIB will be able to deploy these guarantees flexibly up to an overall limit of £10 billion, which is capped at £2.5 billion in any given year.
UKIB will manage its capital position through its economic capital framework with an appropriate buffer, as well as through the institution’s wider liquidity and operational risk management. The Government’s expectation is that the default position is for UKIB to meet any calls on its guarantees from its existing funded financial capacity.
To maximise the impact of UKIB’s guarantees and promote crowding in of private investment, it is important to allow UKIB to rely on the UK Government’s credit rating. To ensure UKIB can utilise this credit rating, HMT intends to provide backing to UKIB such that rating agencies would consider it to have a sovereign credit rating. This backing will create a new contingent liability from HMT to UKIB.
UK Government Investments contingent liability central capability has been consulted as part of establishing the structure of the new scheme.
UKIB will report to Parliament through its annual reports and accounts on any guarantees entered into, providing details on the amount of actual or contingent liabilities.
Authority for any expenditure required under this liability will be sought through the normal procedure.
A departmental minute has been laid in the House of Commons providing detail on this contingent liability.