British town halls and publicly funded universities face "severe penalties" if they institute boycotts of "unethical" companies or Israeli goods under controversial new rules to be outlined by the government this week, AFP reports.

"Locally imposed boycotts can roll back integration as well as hinder Britain's export trade and harm international relationship," the Cabinet Office said in a statement on Monday. "Town hall boycotts undermine good community relations, poisoning and polarizing debate, weakening integration and fueling anti-Semitism," it added.