UK public authorities look set to be banned from “town hall” procurement boycotts, such as against Israel, according to a Cabinet office minister statement that also refers to government plans to change “how pension pots can be invested”.

Cabinet office minister Matthew Hancock is due to visit Israel this week, and there, according to the statement, he is expected to say: “The new guidance on procurement, combined with changes we are making to how pension pots can be invested, will help prevent damaging and counter-productive local foreign policies undermining our national security.”

The announcement comes after various statements and moves by the UK government triggered fears – and discontent – that it would introduce regulations restricting pension funds’ investment decisions.

It has been reported as preparing new procurement guidelines to stop councils from carrying out “politically motivated boycott and divestment campaigns” against UK defence companies and Israel.

In connection with its planned reform of the Local Government Pension Scheme (LGPS) regulations, the UK government also stated that it would publish guidance making clear to authorities that when formulating their policies on environmental, social and corporate governance (ESG), “their predominant concern should be the pursuit of a financial return on their investments, including over the longer term, and that … they should not pursue policies that run contrary to UK foreign policy”.

Today’s statement from Hancock referred to “guidance published this week” and said this “makes clear that procurement boycotts by public authorities are inappropriate”, except where there are formal government legal sanctions, embargoes and restrictions.

“Town hall boycotts undermine good community relations, poisoning and polarising debate, weakening integration and fuelling anti-Semitism,” the statement reads.

Damage to British export is another negative impact that “locally imposed” boycotts can have, according to the statement.

The new guidance applies to all contracting authorities, including central government, “the wider public sector”, local authorities and NHS bodies.

“Any public body found to be in breach of the regulations could be subject to severe penalties,” the statement notes.

The statement also places the new guidance (also referred to as regulation) in the context of the WTO Government Procurement Agreement and existing UK government guidance about trading or investing overseas.

The World Trade Organisation (WTO) agreement already prohibits any discrimination against Israeli suppliers, according to the statement.

In June last year, the UK’s second-largest trade union, Unison, launched a campaign encouraging its members to lobby pension funds, mainly LGPS, to divest from companies supporting the Israeli occupation of Palestine.

A pension scheme in the Netherlands and Norway’s oil fund have in the past divested and/or blacklisted companies due to their links to Israel.

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