Banks have come running to Britain’s M25 motorway project after the government offered to fund it itself

Ask for an example of the severity of the credit crunch, and many would point to Britain’s M25 motorway widening scheme. Worth £5 billion (€6 billion; $7 billion), this is the sort of scheme banks should be licking their lips over. After all, the government could hardly allow a default on the debt needed to fund the private finance initiative scheme. So this was effectively sovereign debt paying funders a nice little premium form for supporting a supposedly private project. A

year ago, banks would have come running.


In fact, the scheme was stalled for months because the banks wouldn’t sign off on it. Finding hundreds of millions of pounds worth of debt when individual banks won’t lend much more than £30 million is hard, especially when credit committees are demanding a good return on top of near absolute security. Things got so tricky that the government was forced to announce a fund to rescue schemes like this, lending state money directly to supposedly privately-funded schemes.


What’s remarkable about the M25 is that the government’s offer alone seems to have shut the banks up. As many as 19 banks have now come forward to back the project– meaning the issue is over-subscribed, after being on hold for so long.


Mind you, the banks should be keen: word has it they could receive as much as 300 basis points(3 percentage points) over base rate for the debt. That’s a remarkable return for a state project. But what is truly remarkable is that the banks are running so scared they would not lend even at these rates before the government stepped in. There is money for projects out there, but no-one dares to

spend it.