Analyse and advise on the UK government’s contingent liabilities
The Contingent Liability Central Capability (CLCC) is an analytical and advisory unit within UK Government Investments (UKGI). The CLCC has been established to strengthen contingent liability expertise within government and improve how government manages its portfolio of risk from contingent liabilities.
What is a contingent liability?
A contingent liability represents a government commitment to possible future expenditure if specific conditions are met or unforeseen events occur, such as loans guarantee (where government agrees to pay the debts of a third party if they default, such as the Export Development Guarantee (EDG) schedule run by UK Export Finance) and indemnities (protection similar to insurance where government agrees to cover costs such as clinical negligence claims against NHS GPs).
Contingent liabilities are a significant source of fiscal risk to government. HM Treasury introduced a new approval framework in July 2017 which requires contingent liabilities that are novel, contentious or repercussive and have a maximum exposure of over £3 million to be evaluated according to five criteria: rationale; exposure; risk and return; risk management and mitigation; and affordability. The framework has been featured by both the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) as an example of international best practice in the management of government guarantees.
The CLCC assists departments and arms-length bodies with assessing, quantifying and pricing risk from contingent liabilities, allowing departments and government to better understand the scale and distribution of their risk exposure from contingent liabilities. The team comprises actuaries seconded from the Government Actuary’s Department (GAD), credit risk experts, policy professionals and analysts.
Siobhan Duffy joined UKGI in 2021 to lead the Contingent Liability Central Capability (CLCC), an analytical and advisory unit set up to strengthen contingent liability expertise across government.
Prior to joining UKGI, Siobhan spent over 25 years working in debt capital markets structuring and advising European corporates on debt issuance. During her career, she has held several leadership roles, including global head of private placement at NatWest Markets/ RBS and, prior to that, head of private debt at ABN Amro. Most recently, she established a debt distribution platform for London Bridge Capital, an independent corporate finance firm.
Outside of UKGI, Siobhan is involved with St Mungo’s supporting a London based Outreach team working with street sleepers.
Alexander joined UKGI in June 2021 to lead the credit branch in Contingent Liabilities Group. Prior to that, he had an over twenty-five-year international career in commercial and investment banking at Deutsche Bank, CIBC and Credit Suisse. He has significant experience in corporate and leveraged finance gained in front office origination, loan portfolio management, and credit risk management. Prior to joining UKGI he was heading the corporates team in credit risk management at Credit Suisse. He holds a master’s degree in economics.
Shehroze joined UKGI in September 2021 and currently serves as the organisation’s first Chief Data Officer. In this capacity Shehroze is responsible for overseeing the analytical work undertaken by UKGI and identifying opportunities to unlock efficiencies across the organisation by leveraging data and insights. In addition, Shehroze is responsible for leading the Portfolio Analysis & Engagement team within the Contingent Liability Central Capability. As part of this he has led work to aggregate contingent liability data from across government and drive data-driven decision making to improve risk management. Prior to joining UKGI, Shehroze lead an analytical unit within the Infrastructure and Projects Authority to bring together government’s £650bn National Infrastructure and Construction Pipeline, advise on the delivery of major government projects and programmes as well as inform decision making around fiscal events.
1. Review and report on existing contingent liabilities
As set out in the 2022 Autumn Statement, the government is committed to taking appropriate measures to manage contingent liabilities as part of a wider approach to sustainable public finances. One of these measures is for the CLCC to publish an annual report to summarise and analyse the stock of contingent liabilities across government.
By setting out the government’s exposure to contingent liabilities, the report will help to provide transparency and allow better understanding of the aggregate exposure to different forms of risk and any interdependencies. Government can then begin actively managing this risk as a portfolio and using the insights when developing new contingent liabilities.
Annual Report on the UK Government’s Contingent Liabilities, 2023
This report from the CLCC brings together, for the first time, a complete view of the UK Government’s exposure to financial guarantees, indemnities, contingent liabilities, and provisions. It aims to identify the scale of contingent liability risk held by government, improve our understanding around the composition of this risk, determine whether government charges adequately for the risk it takes on and consider how to improve value for money across the portfolio.
22 November 2023 4.34 MB
3. Promote best practice across government
CLCC has established the cross-government Contingent Liability Advisory Network; and continues to share best practice guides – visit the document library for more information
Department for Business, Energy & Industrial Strategy (BEIS) – Nuclear related incidents
In the highly unlikely event of a nuclear related incident, government has responsibility for third party liabilities. On 1st January 2022, the 2004 Protocols came into force which amend the rules embedded in the 1960 Paris Convention and the 1963 Brussels Supplementary Convention relating to nuclear third-party liability international conventions. As a result, an increased level of compensation is available to victims.
The 2004 Protocols increase the operator liability in the event of a nuclear incident from the current €140m to a maximum of €1.2bn over a period of 5 years and extend the period for which claims can be made from 10 to 30 years.
At present there is insufficient commercial capacity to insure this risk completely. Therefore, the government has agreed initially to provide an indemnity, for an economic charge, to operators to cover increased personal injury liabilities for the 10 to 30 year period.
The CLCC, using loss estimates provided by GAD, advised BEIS and HM Treasury on practical ways of dealing with these contingent liabilities, including fair allocation of risk and reward between private sector insurers and the government.
Foreign, Commonwealth and Development Office (FCDO) – Clean Green Initiative
During COP26 (2021 United Nations Conference on Climate Change), the UK launched the Clean Green Initiative to help developing countries take advantage of green technology and grow their economies sustainably. The Clean Green Initiative includes a package of guarantees to support clean infrastructure projects.
The CLCC provided specialist advice and expertise in structuring and managing guarantees and supported the FCDO in delivering their package of guarantees. This included the India Green Guarantee to support clean and resilient infrastructure in
sectors such as clean energy, transport and urban development and the Room to Run guarantee scheme to unlock financing capacity from the African Development Bank for projects across the Africa.
Our expertise was able to support the FCDO in achieving its goals to scale up public and private investment in sustainable infrastructure globally.
UK Space Agency – Insurance and liabilities for the space industry
The government committed to review key concerns and proposals raised by respondents to UK Space Agency’s consultation on insurance and liability requirements for the space industry.
The CLCC is working with UK Space Agency and their actuarial advisors from the Government Actuary’s Department to develop these policies, providing views on structuring liabilities, insurance provision, and analysis of risk.
Specifically, the CLCC is advising on the in-orbit operator liability limit in relation to potentially reducing insurance requirements and liability limits of satellites in orbit. This would be achieved by replacing the fixed liability limit with a variable one, using a number of risk criteria to determine a limit which reflects the specific risk in each case.
The CLCC is also helping to explore alternatives to traditional third-party liability insurance to cater for various spaceflight related risks, including what the impacts of alternatives to traditional insurance could be on the insurance market and the space sector.