Agenda item

Report from the Executive Director of Corporate Services.

Recommendations:

That Cabinet:

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

At the Chair’s invitation Councillor Alam OBE, Cabinet Member for Finance and Community Safety, presented the final Treasury Management report for 2025/26, explaining that its purpose was to review treasury activity against the strategy approved at the start of the financial year. The report set out actual prudential and treasury indicators, in accordance with the requirements of the CIPFA Code, and confirmed that treasury management activities had been undertaken in compliance with relevant legislation, guidance and professional standards, thereby limiting exposure to financial risk.

It was noted that the actual indicators were included in Appendix 1 and that quarterly updates had been provided to the Audit Committee throughout the year. The Council had continued to follow a short-term borrowing strategy on the advice of its treasury advisers, with borrowing undertaken only when required and where repayment was expected to be financed in future years. This approach had resulted in a significant increase in the Council’s net under-borrowing position.

Reference was also made to the ongoing economic uncertainty, with inflation having reduced from the historically high levels experienced in previous years, although market sentiment continued to be affected by conflict in the Middle East. Members were advised that treasury activity, economic conditions and associated risks would continue to be closely monitored and reported through regular updates.

The Service Director, Financial Services highlighted that the changing political environment in the UK could also contribute to further short-term volatility within financial markets. In response to previous discussions on Treasury Management Strategy, it was reported that options were being considered to increase longer-term borrowing over the medium term, should opportunities arise, in order to reduce reliance on short-term borrowing and mitigate associated risks.

It was emphasised that there were no concerns regarding the current level of short-term borrowing, which continued to be reviewed regularly with the Council’s external treasury advisers. The approach was noted to be consistent with that adopted by many other local authorities across the sector.

Councillor Yasseen sought clarification on why the Council’s reported under-borrowing position excluded short-term borrowing, noting that the position appeared significantly different when short-term borrowing was taken into account. It was asked whether there was a legal or technical reason for this approach and whether the overall borrowing position should be a cause for concern. The Service Director, Financial Services explained that the treatment was a technical requirement of the Treasury Management Code of Practice, which defines and measures under-borrowing against long-term borrowing rather than short-term borrowing. While the Council reported both long-term and short-term borrowing positions, the under-borrowing calculation was assessed using long-term borrowing only.

In response to a further question, it was confirmed that inclusion of short-term borrowing would not materially alter the overall assessment of the Council’s financial position, which remained robust. However, it was acknowledged that short-term borrowing carried refinancing and interest rate risks, as borrowing would need to be renewed within a relatively short period. Members were advised that these risks were actively monitored by the Treasury team on a day-to-day basis, supported by external treasury advisers. It was further noted that short-term borrowing from other local authorities and the money markets currently remained the most cost-effective means of meeting the Council’s cashflow requirements.

Councillor Blackham commented that, as the Council moved towards a larger programme of capital expenditure funded through borrowing, the balance between short-term and long-term borrowing would become increasingly important. It was noted that decisions on when to enter long-term borrowing arrangements required careful judgement to manage market volatility, maintain value for money and minimise financial risk. While acknowledging that professional advice was taken, concern was expressed that the transition to higher levels of borrowing would require particularly careful management.

The Service Director, Financial Services agreed with these observations and acknowledged the complexity and challenges of treasury management. It was confirmed that decisions on long-term borrowing would continue to be taken prudently and at appropriate points in the delivery of capital schemes. Members were advised that borrowing rates could change frequently and that market conditions were continually monitored. By way of example, it was noted that borrowing for the Forge Island development had been secured at the outset of the project when rates were considered favourable, enabling the Council to lock in an advantageous borrowing rate. The importance of carefully assessing the timing of borrowing for each major scheme was emphasised.

Councillor Blackham concluded by remarking on the commitment required in treasury management to secure favourable borrowing rates and acknowledged the diligence of officers in undertaking this work.

Councillor McKiernan requested further information on the external investments shown within the treasury management table and asked whether future reports could identify the organisations to which the Council was lending, in the same way that borrowing counterparties were reported. It was also observed that the Council both lent to and borrowed from organisations such as the South Yorkshire Mayoral Combined Authority (SYMCA), and clarification was sought on this arrangement.

The Service Director, Financial Services explained that the Council's treasury management activities primarily operated within the local authority lending market, through which councils lend and borrow funds from one another via approved brokers. Where the Council held surplus cash balances, these could be invested with other local authorities to generate income while maintaining a low-risk approach. It was noted, however, that the Council’s overall strategy was to minimise the level and duration of surplus cash holdings.

In response to the request, it was confirmed that future reports could include details of the local authorities to which the Council was lending. Further clarification was provided regarding borrowing from SYMCA, with it being noted that these arrangements involved short-term loans provided at advantageous rates outside of broker arrangements. This enabled SYMCA to make productive use of funds not immediately required, while also supporting local authorities across the South Yorkshire region through access to lower-cost borrowing.

Resolved: That the Overview and Scrutiny Management Board supported the recommendations that Cabinet:

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