S 114 – (3) PWLB terms

November 26th, 2020

Unlinked to any particular LA’s situation, the Government consulted earlier this year on revised Public Works Loan Board lending terms and guidance. The background was LAs’ involvement in the commercial property market as a means of increasing income, which had been the subject of much controversy over the years.  The extreme financial pressures now faced by LAs as a result of the pandemic brings this issue into particular focus. Yesterday (25th November 2020) the Treasury published its response to the consultation, and it can be found here.

As the consultation response explains:-

“In recent years a minority of local authorities have borrowed substantial sums from the PWLB to buy investment property with the primary aim of generating yield. The National Audit Office estimates that LAs bought £6.6bn of investment property between 2016-17 and 2018-19. The government is clear that this is not an appropriate use of PWLB loans.”

The response explains that from today, 26th November 2020, the PWLB (i.e. the Treasury) will apply a new approach to deciding whether to lend for a proposed project.  These include the following:-

“b) the PWLB will ask the finance director of the LA to confirm that there is no intention to buy investment assets primarily for yield at any point in the next three years. This assessment is based on the finance director’s professional interpretation of guidance issued alongside these lending terms.

c) It isn’t possible to reliably link particular loans to specific spending, so this restriction applies on a ‘whole plan’ basis – meaning that the PWLB will not lend to an LA that plans to buy investment assets primarily for yield anywhere in their capital plans, regardless of whether the transaction would notionally be financed from a source other than the PWLB.”

The response also announces that, now a workable system is in place to ensure that loans will “not be diverted into debt-for-yield activity”, PWLB lending rates from today for new Standard Rate and Certainty Rate loans will be reduced by 1%.

Peter Oldham QC

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