Infrastructure hopes hit by City stand-off The government's hopes of boosting growth through infrastructure projects are being thwarted by a stand-off with the City as lenders balk at investing in high-risk developments without greater support from the Treasury. Private sector investment in new infrastructure has been a key plank of the strategy of George Osborne, chancellor, for growing the economy by attracting billions of pounds of investment from banks and pension funds into the building of roads, power plants and hospitals. However, the lenders, already under regulatory pressure to boost their capital ratios, argue that they will not put money in unless the government injects cash directly or underwrites the financial risk on new construction. The impasse will add to pressure on Mr Osborne, who has launched two national infrastructure plans and a raft of initiatives since he became chancellor in 2010. Private sector investment in 500 construction projects formed the centrepiece of the coalition's economic growth plan a year ago. But recently published official figures showed infrastructure spending across the UK had declined 11.3 per cent in the past 12 months. Further announcements are expected in the Autumn Statement on December 5. While the government had hoped that pension funds would invest £20bn in infrastructure over the next decade, and £2bn by early next year, a year of talks has so far raised just £700m, according to the National Association of Pension Funds. Banks including Royal Bank of Scotland, Barclays and Nationwide, which traditionally provided the majority of private finance for construction, have also scaled back their lending and shrunk or closed their infrastructure teams as they become more risk-averse. This has been exacerbated by new Basel III regulations that require banks to hold more capital against long-term projects. Infrastructure UK, part of the Treasury, introduced a guarantee scheme last summer. But Geoffrey Spence, the unit's head, is resisting bankers" lobbying for it to be strengthened. Critics say the effect of the scheme will be limited as it requires projects to be ready to start within 12 months of getting the guarantee, with the necessary planning and contracts in place and with equity finance already committed. "The guarantee provides little benefit because the chief problem is there is no equity for projects in the first place," said Noble Francis, economics director at the Construction Products Association. The guarantee has so far been used for Crossrail rolling stock, but not yet for construction. Richard Abadie, head of infrastructure at PwC, said there was no sidestepping the need for government investment. "Knowledgable people in the market questioned the £20bn to be raised from pension funds the minute it was announced," he said. If you want to move the dial on GDP growth, it's government investment not the private sector you need to rely on. Adrian Walker, head of infrastructure, public and project finance, at Hogan Lovells, the law firm, said: "Some banks are definitely taking a breather from lending long term to infra projects. The government could solve the problem with one sentence - we will underwrite refinancing risk. We doubt they have appetite for this, but let's see whether they have a "silver bullet" when the Autumn Statement comes out."