The Treasury has updated its guidance on Public Works Loan Board lending to say that the PWLB “will not typically advance new loans if there is a more than negligible risk that the newly advanced PWLB loan will not be repaid without future government support”.
The guidance says that failure to repay lending “undermines the ability of the PWLB to continue to provide accessible, low-cost lending for local authorities to undertake capital projects”.
It adds that HM Treasury considered it necessary to clarify this "in response to the continued build-up of very high levels of debt and associated credit risk in some local authorities".
The updated guidance also says that:
13. HM Treasury considers that compliance with the Prudential Framework, including the four statutory codes (and equivalents in Scotland and Wales) generally provides sufficient assurance regarding the risk of nonrepayment held by a local authority. As such, a local authority should not expect any change in their ability to access PWLB loans or to the process of applying for a loan unless contacted by HM Treasury regarding specific concerns.
14. HM Treasury will continue to work across government to ensure there is adequate monitoring of risk in the local government sector. HM Treasury works with departments across government to monitor financial risk in local authorities, and this ongoing monitoring will be considered alongside any other relevant factors when determining if a local authority is potentially at risk of non-repayment.
15. If this monitoring raises particular concerns regarding any local authority, HM Treasury will contact the local authority to begin a period of engagement during which there will be the opportunity to make representations regarding capital spending and debt. HM Treasury will ensure that there is sufficient time for a full investigation, including local authority representations, before taking a view on whether the local authority poses a more than negligible risk of non-repayment and whether that local authority is not adequately taking action that could be reasonably expected to reduce that risk
16. HM Treasury will generally consider that where a local authority is actively and constructively engaged with government on addressing financial risk, that local authority is sufficiently managing risk of nonrepayment. This includes where a local authority is working with the government as part of ongoing financial support measures. In such cases, HM Treasury will work with the relevant departments to assess any risks to the PWLB.
17. During the period of engagement with a local authority, HM Treasury may consider it necessary to take action to protect PWLB resources while balancing the needs of the local authority to manage their financial affairs and delivery of services, such as limiting the loan term length generally offered to the LA in question. HM Treasury would only take a final view on whether to restrict further lending after engagement with that LA.
The updated guidance can be viewed here.