Local authorities who want to invest in or underwrite renewable energy projects could see their plans outlawed after HM Treasury set out proposals to change the lending terms of  the Public Works Loan Board, which provides funding.

HM Treasury said in a new consultation that local authority borrowing has grown substantially in recent years. That was “led by a minority of LAs borrowing from the Public Works Loan Board (PWLB) to buy investment assets primarily for yield”. LAs bought £6.6 billion of commercial property between 2016/17 and 2018/19. Loans made by PWLB increased and borrowing was unusually elevated in the summer of 2019, including £500 million borrowed in a single day, as PWLB rates fell to record lows, says the consultation. It suggested some local authorities were borrowing ‘ahead of need’.

The consultation said that was a low-value use of public resources, raised the issue of whether services could suffer if the expected yield did not appear, puts “unmanageable pressure” on the PWLB and risks distorting local markets.

In a ‘limited consultation’ HM Treasury said it wanted to continue to support LA investment in service delivery, regeneration, and housing, without impinging on the powers and freedoms that LAs use to deliver local services in innovative ways.

The consultation notes that the PWLB does not ask the intended purpose of a loan, on the basis that local capital projects will already have passed the scrutiny and internal governance processes of the democratically elected Council of the applicant authority. It  relies on robust local decision-making and an affordability rule on borrowing to ensure that local authorities prioritise projects that offer good value for money.

It proposed:

• Requiring authorities that wish to access the PWLB to confirm that they do not plan to buy investment assets primarily for yield 
• Publishing guidance defining the activity that the PWLB will no longer support, with clear protections for service delivery, regeneration, housing, and the refinancing of existing debt 
• Standardising the information currently gathered through the application process for the PWLB Certainty Rate and using this as the primary way to confirm with LAs that their plans conform with the guidance 

The consultation closes on 31 July. Read the full document here