Agenda item

Natalia Govorukhina, Head of Corporate Finance, reported that the CIPFA (Chartered Institute of Public Finance and Accountancy) Code of Practice for Treasury Management 2021 recommended that Members be updated on Treasury Management activities at least quarterly.  The submitted report was the quarter 1 review for 2025/26 which detailed performance against Treasury and Prudential Indicators.

The report incorporated the needs of the Prudential Code to ensure adequate monitoring of the capital expenditure plans and the Council’s Prudential Indicators (PIs).  It was also explained that it was a requirement that any proposed changes to the 2025/26 Prudential Indicators were approved by Council.

The monitoring, as set out in Appendix A, highlighted the key changes to the Council’s capital activity (the PIs) and the actual and proposed Treasury Management activity (borrowing and investment).  The review indicated performance was in line with the plan and there were no proposals to vary the approach for the remainder of the year.

Reference was made to the key messages for investments, borrowing and governance.

With regard to investments, the primary governing principle remained security over return and the criteria for selecting counterparties continued to reflect this.

The Council would maintain its strategy of being under-borrowed against the Capital Financing Requirement (CFR).  The Council had borrowed £50M in the year to date which had been used to refinance short term borrowing as it matured as well as the Capital Programme.

It was anticipated that further borrowing would be required before the end of 2025/26.  As reported previously, the Council would predominantly adopt a short term borrowing strategy to cover this borrowing need in anticipation of lower interest rates in the medium term.  There was a discounted rate with the PWLB for borrowing long term funds specifically for Housing Revenue Account purpose.  This was available until March 2026.  Depending upon the prevailing interest rate position, the Council may utilise this rate for some long term borrowing, however, the borrowing position would remain under review.

Whilst the Council’s approach to Treasury Management in recent years, utilising short-term borrowing in particular, had generated significant savings for the Council, it was essential to achieve balanced budgets, the future outlook was more challenging. It was expected that borrowing rates had now peaked and would reduce over the next couple of years linked to the recent return of inflation back down towards the Bank of England’s target 2% level.

The Council had undertaken £50M of new borrowing in the year to date.  This had been used to refinance existing borrowings as they matured as well as financing capital activity.

The continuing approach to Treasury Management had been discussed with the Council’s external Treasury Management Advisers, Link Asset Services, who had confirmed this was a prudent approach given current market conditions.  Link Asset Services would continue to monitor borrowing rates and inform the Council if there were opportunities to borrow at advantageous rates.

Discussion ensued with the following issues raised/clarified:-

·        Treasury Management looked at the overall borrowing requirements as they matured and refinanced that debt based on the cash flow position, the level of cash expected month by month and the expected expenditure.  Plans were in place to refinance the debt as it matured

·        The Strategy for short term borrowing was to reduce the cost of interest and gave an opportunity to keep a watching brief.  At this point in time it was the right approach to take

·        When a local authority wanted to borrow cash, an offer was put to the market and prospective lenders would suggest an interest rate.  The local authority did not set the rates it would pay.  If the rate was comparable to the wider market and it was within the Treasury Management Strategy it would be taken up.  In the same month there would be differences between what one authority would offer and what another would

·        In December 2024 the Council exercised an option for a one year extension until January 2026 of the contract for Treasury Management advice provided by Link Asset Services Treasury Solutions (LAS), who were appointed for a 3 year term in January 2022.  Procurement options for this service were currently being explored and the Audit Committee would be updated in due course.

Resolved:-  That the report be received and the contents noted.