Jonathan Reynolds overruled the head of UK Export Finance three days before the Budget to raise taxpayer-backed cover for Ukraine by £3bn, after the agency’s accounting officer said the move failed a basic test for spending public money.
The £3bn makes up almost a third of the Chancellor’s £10bn Ukraine package. The official responsible had refused to sign it off without a formal ministerial order.
The exchange of letters between Tim Reid, chief executive and accounting officer of UK Export Finance (UKEF), and the Business Secretary was published on GOV.UK on Wednesday afternoon, Budget day.
In his letter of 23 October, Mr Reid said that raising UKEF’s limit for Ukraine from £3.5bn to £6.5bn ‘does not meet the regularity test’ in the Treasury’s Managing Public Money rules, because support to Ukraine ‘falls outside of UKEF’s normal underwriting criteria’. He added: ‘I am also unable to conclude whether such support represents value for money.’
His warning on risk was blunt. ‘The probability of default and expected loss is exceptionally high,’ he wrote. ‘There remains a strong possibility that future debt relief operations will result in the restructuring of UKEF-backed debt and corresponding losses to the Exchequer.’
He said the cost is already showing up in the accounts. Accounting rules require UKEF to book expected losses when support is issued, not when a borrower defaults, and the agency ‘expects to report a substantial net operating deficit for 2025-26, driven by its support for Ukraine’. His letter does not put a figure on it.
On 25 October Mr Reynolds issued a formal direction. He said he had weighed the risks against ‘the wider national security, foreign policy and economic benefits’ and judged the increase to be in the national interest, ‘notwithstanding the significant financial risks involved’. Mr Reid said Treasury consent would also be needed before any extra support could be provided.
The Chancellor, John Healey, told MPs the £10bn of ‘additional economic and military support’ was ‘based on loans, Export Finance guarantees, and half a billion in urgent military funding for this winter’.
The Treasury’s breakdown shows how much of that headline is backing rather than cash. The £7bn of economic support over three years includes up to £5.5bn of World Bank guarantees and a £500m grant to a World Bank crisis facility, which the Treasury says will mobilise £1.5bn. The other £3bn is the UKEF increase, ‘prioritised for military support’. The package also includes £500m of additional military support for Ukraine’s air defences this winter.
Guarantees and export credit cost the taxpayer only when borrowers fail to repay. On the UKEF slice, that is the outcome the accounting officer has warned is likely. The Treasury’s announcement did not say what losses the Government expects on the new cover.
The Treasury also counts the full £6.5bn UKEF cover limit within the £35bn it says the UK has now committed to Ukraine, alongside £16bn of military support and up to £12.6bn of non-military support.
The approach is not new. Mr Reid noted that ‘successive Ministers have directed UKEF’ to keep operating in Ukraine since Russia’s full-scale invasion in 2022, a policy that began under the last Conservative government. He said the existing £3.5bn has backed nuclear fuel supplies, the rebuilding of critical infrastructure and air-defence missiles, while creating jobs and industrial capacity in Britain.
Backing Ukraine against Russian aggression has wide support across the Commons. The question for Labour, as the Government now taking the decision, is whether taxpayers are being told the full cost. Mr Reynolds has nearly doubled a limit his own accounting officer says carries an exceptionally high risk of loss, in a Budget that raises taxes on banks and savers.
Under Managing Public Money, copies of both letters go to the Comptroller and Auditor General, the Treasury Officer of Accounts and the chairs of the Public Accounts Committee and the Business and Trade Committee.
No figure has been published for the losses UKEF expects to book on the existing £3.5bn, or on the £3bn that Mr Reynolds has now ordered.
Image: Jonathan Reynolds, Business Secretary. Official Cabinet portrait by Lauren Hurley / No 10 Downing Street, OGL 3, via Wikimedia Commons, cropped.
