Following HM Treasury's consultation on the Public Works Loan Board's (PWLB) lending terms earlier this year, the Government yesterday published the outcome of the consultation together with Circular 162 detailing the new lending terms that PWLB will offer to local authorities.

The Circular can be found here.

The application process now includes the following question:

Does the section 151 officer* (or equivalent) confirm that the authority does not plan to buy investment assets primarily for yield in the next three years?

To set this question in context, the consultation response from the Government says:

"...The aim of this consultation was to develop a proportionate and equitable way prevent local authorities from using PWLB loans to buy commercial assets primarily for yield, without impeding their ability to pursue service delivery, housing, and regeneration under the prudential regime as they do now..."

"...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 fir yield anywhere in their capital plans, regardless of whether the transaction would notionally be financed from a source other than the PWLB..."

This represents a significant shift in the Government's approach to managing local authority use of PWLB and both documents will be essential reading for local authority finance and legal teams looking at funding capital projects going forwards.   

HM Treasury may well be asking more questions (not in all cases and not necessarily on individual loans) than it might have in the past and if it does not feel is getting an adequate response the Circular highlights the ability to suspend access and in certain circumstances require repayment (see paragraphs 49 to 51).

My initial thinking from reading this is that the primary or dominant motivation for acting is going to key to ensure compliance here.  This is something that authorities will want to consider (and document) at the same time as looking at their vires for acting.