Agenda item

To consider the quarter 3 review of treasury management activities in accordance with best practice in according with the CIPFA Code of Practice for Treasury Management 2021

Consideration was given to the report presented by Natalia Govorukhina, Head of Corporate Finance, which detailed how the regulatory framework of Treasury Management required the Council to produce a mid-year treasury review, in addition to the forward looking annual Treasury Strategy and backward looking annual treasury outturn report.

The quarter 3 review for 2025/26 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 a requirement that any proposed changes to the 2025/26 Prudential Indicators were approved by Council.

The monitoring as set out in the Appendix to the report was structured to highlight the key changes to the Council’s capital activity (the PIs) and the actual and proposed Treasury Management activity (borrowing and investment).

It was noted that the Treasury Management Strategy had been considered by Council on 4^th March, 2026 as part of the Budget and Council Tax 2026/27 report (Minute No. 127 refers).

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.  With regard to borrowing, the Council will maintain its strategy of being under-borrowed against the capital financing requirement.  Since the mid-year report submitted to Committee in November 2025 (Minute No. 51 refers), the Council had borrowed £25M from the South Yorkshire Mayoral Combined Authority with further borrowing expected to be required before the end of the current financial year.  This borrowing was to re-finance historic debt and support cash flow management. 

As previously reported, the Council will predominantly adopt a short-term borrowing strategy to cover borrowing need in anticipation of lower interest rates in the medium to long term.  The Council was forecast to require additional borrowing before the end of the 2025/26 financial year and would be taken on a short-term basis to avoid exposure to currently high interest rates in anticipation of lower rates in future years.  There was a possibility of taking some long-term borrowing from the PWLB at the discounted HRA rate.

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

The Council’s approach to Treasury Management in recent years, utilising short term borrowing in particular, had generated significant savings for the Council, essential to achieving balanced budgets, however, the future outlook remained challenging. The Bank of England had started to cut Base Rate and the cost of short term borrowing had reduced as a result with further reductions expected in the near future.  The costs for long term borrowing, however, remained high reflecting the yield on UK gilts.

The current strategy was to maintain the Council’s position of being under-borrowed against the Capital Financing Requirement.  The Council was forecast to require additional borrowing before the end of 2025/26 financial year.  This borrowing would be taken on a short term basis to avoid exposure to currently high interest rates in anticipation of lower rates in future years.  There was a possibility of taking some long term borrowing from the PWLB at the discounted HRA rate.  A further update would be provided as part of the Council’s Treasury Management Strategy for 2026/27.

Discussion ensued with the following issues raised/clarified:-

·       Whether the short-term borrowing strategy remained effective in the current financial climate or should be revisited.  It was clarified that as a result of regular meetings with treasury management advisers, the Council remained comfortable with the current strategy.  This had realised saving which had addressed budget pressures and it remained the case that interest rates were expected to fall in the long term.

·       The timing of the annual report and ambiguous statements within the report at the budget Council meeting which implied that the Audit Committee had reviewed and approved the budget which was not the case.  It was noted that the role of the Audit Committee was one of oversight and scrutiny and not decision making and as such it was considered appropriate that the Treasury Management Strategy went to Cabinet and Council prior to scrutiny by the Audit Committee as they were the decision making bodies.  However, it was agreed that the wording in the future reports would be reviewed to address ambiguity and clarify that consideration by the Audit  Committee referred to therein related to the previous report.

·       In relation to section 4.8 of the report relating to capital expenditure and the 2027/28 financing profile, the estimated dip for Children and Young People’s Services and Corporate Services was queried. It was clarified that there had been slippage connected with the buildings decarbonisation programme and capital contingency budgets in the final year of projections, alongside a number of Regeneration and Environment projects which made the 2026/27 appear higher.  Much of this was connected to the Regeneration Fund which was a time limited scheme, with delivery required before the end of 2026/27.  It was also noted that the Mainline Station and Strategic Sites, alongside Schools funding due to government timelines would drop into the 2027/28 figures.

·       At section 4.9 of the report, a jump in capital receipts was noted. This related to planned use of right to buy receipts in order to keep the HRA growth programme moving.

·       The increase in external debt profile in 2028/29 was noted.  It was explained that the critical issue was the Council’s ability to finance its borrowing, with the treasury management strategy designed to accommodate short-term spikes, whilst there remained the desire not to take the CFR too high in the long term.

Resolved:- 

That the report be received and the contents noted.