Agenda item

Report by the Strategic Director of Finance and Customer Services.

Recommendations:

That Cabinet note the Treasury Management Prudential Indicators outturn position as set out in Section 2 and Appendix 1.

At the Chair’s invitation the Cabinet Member for Finance and Community Safety introduced the report noting the following:

·       This was the final strategy report for the financial year.

·       It reviewed treasury activity against the strategy agreed at the start of the year.

·       It included actual performance against prudential indicators for 2020–2025, as required by the relevant codes of practice.

·       The Council’s treasury function operated in accordance with, the Local Government Act and associated guidance and professional codes.

·       Those frameworks were designed to limit risk in treasury activities.

·       The Council had complied with all indicators set out in Section 2 of the report.

·       The Council continued its short-term borrowing strategy, based on advice from treasury advisors.

·       Borrowing was only undertaken when necessary.

·       This approach had led to a significant increase in the net under-borrowed position, meaning the Council had not borrowed up to its full capital financing requirement.

·       The strategy helped control interest costs and reduce the need for borrowing.

·       Slippage in the capital programme also contributed to reduced borrowing needs.

·       Those factors resulted in an £8 million underspend on the treasury management budget.

·       The savings were used to support the Council’s overall financial position.

·       The report met the requirements of the CIPFA Treasury Management Code of Practice and the Prudential Code for Capital Finance in Local Authorities.

The Chair invited members of the Overview and Scrutiny Management Board (OSMB) to raise questions and queries on the points raised earlier.

Councillor Tinsley queried a short-term loan of £20 million taken out for one month, asking whether this indicated a financial issue? The Assistant Director Financial Services clarified that there was no financial issue. The loan was part of the Council’s cash flow management strategy. The Council aimed to minimize cash holdings due to high interest rates, making short-term borrowing a cost-effective solution. This approach was expected to continue over the next few years.

In a follow-up question the Chair asked about the risks associated with short-term borrowing. The Assistant Director Financial Services explained the main risk was interest rate fluctuation. The Council was under-borrowed, meaning it hadn’t committed to long-term borrowing for its full capital financing requirement. Eventually, short-term loans would need to be converted to long-term borrowing, and timing was crucial to secure favourable rates. The Council had previously secured £227 million at 1.6% interest during a market dip, which was highly advantageous.

In a further question the Chair asked how the Council would adapt its borrowing strategy if interest rates continued to fall? The Assistant Director Financial Services explained the strategy would involve timing long-term borrowing to coincide with the lowest point of interest rates. Options included borrowing in smaller tranches or making a large commitment if confident about market conditions. Predicting the bottom of the dip was difficult, but the Council aimed to act when rates were most favourable.

Councillor Yasseen praised the Council’s financial prudence and noted its impressive performance in investment benchmarking. Councillor Yasseen suggested the Council consider adopting an Environmental, Social, Governance (ESG) investment policy, similar to other councils like Cardiff and Leicester. The Assistant Director Financial Services thanked her for the positive feedback, going on to explain that ESG was not currently a formal part of the Council’s treasury policy. Green bonds had been considered but were currently too costly due to high premiums. However, he agreed that ESG principles should be considered in future strategy development, especially in alignment with the Council’s climate goals.

Resolved: That the Overview and Scrutiny Management Board supported the recommendations that Cabinet: note the Treasury Management Prudential Indicators outturn position as set out in Section 2 and Appendix 1.