Helen Radall and Paul McDermott present a legal examination of the new PWLB borrowing rules as Charles Dickens might have imagined it.
Free and easy PWLB (“Marley” to his friends) was dead, to begin with. There is no doubt whatever about that. The register of his burial was signed by the National Audit Office, the chancellor, the Secretary of State, and mourners from every district and shire…. Old Marley was as dead as a doornail.
Scene 1: The night before Christmas
Set: A startled Scrooge (our s151 heroine) is confronted by the ghost of old Marley (the former CEO) in Middletown’s gloomy neogothic town hall.
Marley: Beware Scrooge! Tread carefully with the new PWLB criteria. No more buying casinos in Crete and if you do, then forget PWLB money. Save yourself!
Scrooge: You might be dead but you still speak nonsense. Neither law nor statutory guidance has changed. I shall act as cannily as I always have. Though still tell your caution.
Marley: The law hasn’t changed but the lender’s terms have. Scrooge, you can be as clever as you like, but if Banker Rishi’s beadles decide his rules are broken then you are damned to my fate and Middletown gets no PWLB loans for up to three years.
You can definitely borrow capital from PWLB for:
- Service provision, eg., a new library;
- Treasury management, eg., refinancing existing debt;
- For housing, subject to some conditions;
- For regeneration and preventative action. Though mark old Marley’s words, these two cannot be a smokescreen for what is forbidden.
Scrooge: Pray tell what is now forbidden?
Marley: Investment assets bought mainly for profit. For example, buying land or existing buildings to let out at market rate (e.g. buying a gym in Glasgow to let on market terms, or a shopping arcade in your town if there is no additional investment or modification to the property).
Borrowing in advance of need is also curtailed.
Housing and regeneration categories might include some assets for yield providing profit is not the main reason for acquiring those assets and any profit generated is ring-fenced for similar activities. No cross-subsidising Middletown’s services. There should also be an exit strategy for regeneration interventions.
Banker Rishi is a clever cove, you must contact his beadles if you suffer any doubt.
To aid your path to PWLB redemption I have called upon three ghosts to visit you this night. Old friend, be not afraid of these apparitions, unlike our dear Leader, they cannot harm thee.
Scene 2: Crete
Set: Middletown’s glamorous municipal casino with a relieved Scrooge facing her recent and fading predecessor.
Ghost of Christmas Past: As this is my lucky night I will only briefly detain you. What I did is done. Beadle Rishi is not interested in my escapades with PWLB loans to buy for yield assets as this was in my past, before the 26 November 2020. Dear Scrooge you only need to be concerned with your present and future. Goodnight.
Scene 3: The Counting House aka Debt Management Office, Philpot Lane, London
Set: Snowing heavily outside the front door with Scrooge and the Ghost of Christmas Present shivering through masks.
Scrooge: These other spectres are mistaken and lack my creativity. I’ll borrow privately for income generation and PWLB for housing and services. The dear Leader is bound to reward me with the CEO’s job.
Ghost of Christmas Present: Poor Scrooge you really have no idea that your goose is, if you get this wrong, rather well cooked.
You must, as the s151 heroine, give Rishi’s beadles assurances that Middletown will not borrow in advance of need nor that Middleton has plans to acquire investment assets for yield. You also have to allocate proposed capital spending into defined categories.
If you get this wrong no PWLB money will be forthcoming. Worse still, if errors are discovered after Middletown receives PWLB money the beadles will interrogate Middleton for much more information, order us to unwind the offending transaction and in extreme circumstances, repay the offending PWLB loan.
Scrooge do cheer-up! Next is my brother, the Ghost of Christmas Yet to Come or, CYC to those in the know. CYC has some tips to help realise your CEO’s dreams.
Scene 4: Middletown Council Chamber
Set: A sunny day set comfortably in a covid-free future. Scrooge, CYC and some service directors are huddled round a table planning the budget.
Bob Cratchit (Director of Children’s Services): Scrooge I now have thousands of Tiny (and all other sizes of) Tims and Tanishas. My SEND budget is sunk and your job is to get some income in. If we can’t have another casino, can’t you at least think about buying that deluxe gym in Guernsey?
CYC: Now Scrooge, I see that Bob’s service has a real need but if you buy that gym with Middletown’s reserves you will need to declare it to Rishi’s beadles.
Scrooge: Bob, I’m sorry, we can’t buy the gym. You will need £15m for the new children’s centre and we have committed to delivering 150 new homes. We can’t do any of that without PWLB money. There is no way I can certify that gym isn’t an investment property or fits into one of the PWLB lending criteria.
Belle (Director of Culture and Communities): Scrooge, building the cultural hub is key to delivering the council’s objective of promoting culture and revitalising the town centre. My business plan shows a small return because you always lecture me on balancing the books. A £30m loan is reasonable.
CYC: Belle might have something here. Is this regeneration and does it contribute to residents’ well-being?
Scrooge: Belle, we need to evidence that the cultural hub falls within our policy objectives. Your previous cabinet reports on the importance of culture to health and reviving the town centre are useful. Despite the small projected return we need to robustly show that we are not primarily doing this to make a profit. Any surplus should be used to maintain the building.
Fred (Director of Housing): Dear aunt have a heart! We need a loan to deliver those 150 homes. 50 will be affordable, 50 PRS and the rest sold to first time buyers. Our dear leader made this and the housing company her top priorities.
CYC: Young Fred you may be in luck.
Scrooge: Housing is favoured under the PWLB criteria and it acknowledges that this may be delivered through a housing company. Dear Fred, you need to work on the business plan and identify where any surplus might be applied to deliver further housing.
Finale: The cast, joined by Middletown’s dear leader sing ‘Beg steal or borrow’.
Paul McDermott and Helen Randall are partners at law firm Trowers & Hamlins LLP’s Public Sector Group.
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