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PWLB and Commercial Investment


The consultation on changing the borrowing rules through the Public Works Loan Board (PWLB) have been much anticipated by local government as it has potentially wide-reaching impacts on the options local authorities have for making investments and generating yield for offsetting budget cuts.

As in all markets, there has been a full range of investment strategies demonstrated by local government. However, borrowing to generate yield to some degree or another has become common place and has increasingly become an important part of the commercial development of local authorities with the income generated also becoming vital to offset budget cuts.

The publication of the new PWLB rules and guidance on 25th November identifies what is now allowable and possible. This article examines the rules and guidance to look at what options are still open to local authorities and how borrowing from the PWLB can still be part of their commercial development.

The New Guidance

The new guidance seems to be looking to stop local authorities from borrowing if the intention of the borrowing is primarily for the generation of yield. Capital spending plans will have to be submitted in advance, and if a local authority intends to buy commercial assets primarily for yield (even using reserves) then they will be prevented from taking any PWLB borrowing in that financial year. This will stop Finance Directors from reprofiling the capital programme so that borrowing is only used on allowed projects, with internal borrowing used for commercial activities.

Each local authority that wishes to borrow from the PWLB will in future have to submit a high-level description of their capital spending and financing plans for the following three years, including their expected use of the PWLB. Local authorities will be able to revise these plans in-year as required.

The section 151 officer or equivalent will have to provide an assurance that the local authority is not borrowing in advance of need and does not intend to buy investment assets primarily for yield.

When applying for a new loan, the local authority will be required to confirm that the plans they have most recently submitted remain current and that the assurance that they do not intend to buy investment assets primarily for yield remains valid.

What borrowing is authorised?

The guidance sets out categories of borrowing that are authorised. These include

  • Service spending

  • Housing

  • Regeneration

  • Preventative

  • Treasury Management

Individual projects and schemes may have characteristics of several different categories of course. In these cases, the Section 151 Officer or equivalent of the authority will need to use their professional judgment to assess the main objective of the investment and consider which category is the best fit.

What will be the result?

The nature and type of local authority investments will definitely change. Out of area acquisitions will be very hard to justify within the new guidance. However, the categories of authorised borrowing are broad enough to allow different interpretations through which arise different possibilities for commercial investment.


The Housing category is activity normally captured in the HRA and General Fund housing sections of the COR, or housing delivered through a local authority housing company. This does provide scope on the face of it, for continuation of housing schemes, including through LA owned companies, and does not appear to restrict the borrowing to social or affordable housing.


Regeneration projects are described in the guidance as having characteristics that fall into one of four areas:

  1. the project is addressing an economic or social market failure by providing services, facilities, or other amenities that are of value to local people and would not otherwise be provided by the private sector.

  2. the local authority is making a significant investment in the asset beyond the purchase price: developing the assets to improve them and/or change their use, or otherwise making a significant financial investment.

  3. the project involves or generates significant additional activity that would not otherwise happen without the local authority’s intervention, creating jobs and/or social or economic value.

  4. while some parts of the project may generate rental income, these rents are recycled within the project or applied to related regeneration projects, rather than being applied to wider services.


These characteristics are relatively broad and potentially leave room for flexibility in project scope for commercial initiatives. For instance, we are currently working on commercial projects with a couple of local authorities that are about addressing market failure. However, by addressing the market failure the local authority will not only be positioned to provide a better service for residents but will also generate income and savings in the process.


The central point of the guidance is what the investment is primarily for, given that many projects will straddle the boundaries of the categories. If local authorities have any projects that are primarily for yield, then borrowing is simply not available to them.


However, that does not prevent local authorities from borrowing for projects that are primarily for other purposes, which also happen to generate a financial yield.


For authorities that wish to continue to generate commercial income in order to protect services, the challenge will be finding projects that deliver much more than financial yield, such that they cannot be accused of investing in projects primarily for yield. Any yield in any such projects will have to be secondary to another prime purpose.


To achieve this a wide definition of what ‘being commercial’ will be needed. Local authorities will need to get better at understanding the link between social impact and commercial return and will need to think about how they can become a more integral ‘part of the infrastructure’ of their communities and particularly regeneration initiatives.

What other opportunities are there?

There are still other ways for local authorities to invest in commercial property.

It should be possible to ring-fence rents from an existing ‘yield’ project, recycling them either within the project, or applying them to other similar projects with related or similar project outcomes.

The requirement on the s151 officer set out in the guidance is to provide an assurance that the local authority is not borrowing in advance of need and does not intend to buy investment assets primarily for yield. It does not ask you to provide assurance that you are not investing in assets primarily for yield. Where you already have yield based assets, you could ring-fence some of that existing revenue income to invest on that asset, or other yield bearing assets, to improve investment performance and yields.

This might be a case of looking at your existing ‘legacy’ property portfolio and spotting opportunities where an injection of investment could generate greater yields. Because the guidance is framed around borrowing to buy and not borrowing to invest, there appears to be no restriction on borrowing to build new yield-bearing investments on existing local authority land.

Another option to consider might be buying ‘yield’ projects where you intend to inject further investment beyond the initial purchase price. This might be through refurbishing or re-purposing the acquired asset. This appears to be a perfectly legitimate borrowing category.


The new guidance shows there are still opportunities to invest and to generate investment income. However, to achieve this requires local authorities to approach investment in a more rounded way, linking investment opportunities much more closely to the delivery of the corporate plan than many have before. The investment opportunities will take more work and more thinking through, however there are still opportunities within the new guidelines to generate yield through investment.


Yield can’t be the only or primary reason for the investment. This means that investments have the potential to generate much more than just yield if done well.

Contact for more information.

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