The UK’s new budget will see the country’s export credit agency UK Export Finance (UKEF) have its direct lending capacity increased by £2bn in the years after Brexit.
UKEF’s current capacity for direct lending for UK exports sits at £3bn, and there have been fears among the British exporting community that the programme was being rationed as it neared this limit.
UKEF launched its direct lending facility (DLF) in 2012. The first loan under the facility was a £68mn buyer credit loan that supported now-bust construction services company Carillion.
Under the DLF, fixed-rate finance is available to cover new international sales by any business exporting from the UK, to any country where UKEF medium-term cover is available, and can be made in sterling, US dollars, euro or Japanese yen.
The increase was announced by chancellor Philip Hammond in his Autumn 2018 budget on Monday.
The boost will come in two “one-off” amounts of £1bn for the financial years 2020/21 and 2021/22, and will focus on developing markets following the UK’s departure from the EU, a spokesperson from UKEF tells GTR. Each of the two additions of £1bn will only be available during the specified financial year and are not “recyclable”.
Unlike the terms of the original facility, which saw UKEF set up a panel of invited financial partners to help it administer the loans, UKEF will now look to partner with “any bank or institution to deliver its direct lending support, provided it meets the relevant criteria as pre-determined by UKEF”, the spokesperson says.
“The increase is designed to ensure that exporters have the support they need to enter new markets following the UK’s departure from the EU. UKEF has a strong pipeline of projects that are likely to require direct lending support, and we anticipate continued high levels of demand for this product. This measure is designed to enable us to meet this demand,” the spokesperson adds.
A shot in the arm for UK exports
The expansion of the facility will be welcome news to the UK’s exporters.
In a recent letter from the British Exporters Association (BExA) to the chancellor, seen by GTR, the association outlines its concerns for the future of the facility, pointing out that the DLF is a “critical tool for UK exporters” and has been “game-changing in levelling the playing field when bidding for overseas projects, particularly in fast-growing markets where liquidity is tight”.
In the letter, signed by co-chairs Marcus Dolman and Geoffrey de Mowbray, BExA noted that its member had been reporting “mixed messages” and “poor communication” from government officials on the future of the product and the form it will take. This, it said, had led to unnecessary confusion for both exporters and the banks that finance them.
“Additional uncertainty is unacceptable at a time when the outcome of the Brexit negotiations is already a huge cause for concern for our members. A consistent and positive message from government on the DLF is essential,” the letter added, going on to call for a long-term government commitment and short-term limit increase to the DLF.
Meanwhile, KPMG argues that the increased support falls short of what UK exporters need, and that many don’t even use the facility.
“The country’s ambition for strong economic growth is said to be pinned on UK exporters, but the budget could have done more to offer tangible, fiscal-based incentives for businesses to sell their goods and services abroad,” says David Slater, director of trade at KPMG UK.
“Although the money for UKEF will be welcome in helping some exporters win, fulfil and get paid for contracts, it isn’t clear how the money will be made available. We should also remember that only a relatively small proportion of exporters use these facilities,” he adds.
The government’s announcement follows the publication of its export strategy in August, setting out its ambition to increase exports as a proportion of GDP and produce “more tailored support” to UK companies.
Key elements of this support will be peer-to-peer learning to encourage more businesses to export; the development of the department for international trade (DIT)’s website into a “single digital platform” for practical advice and assistance on exporting; and the creation of an online tool to enable UK businesses to easily connect to overseas buyers, markets and other UK exporters.