Agenda item

Consideration was given to the report presented by the Head of Corporate Finance outlining the mid-year treasury review which also incorporated the needs of the Prudential Code to ensure adequate monitoring of the capital expenditure plans and the Council’s Prudential Indicators.

The review, as set out in the Appendix submitted, provided detail of mid-year performance against the plan, the key changes to the Council’s capital activity (the PIs) and the actual and proposed treasury management activity (borrowing and investment).

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 and continue to use local authority short term borrowing to meet all borrowing requirements as the most cost effective approach in the current financial climate. The position would remain under review with an update on the Strategy being submitted to Members within the Budget and Council Tax 2021/22 report to Council in March, 2021.

With regard to governance, strategies and monitoring were undertaken by the Audit Committee.

The report illustrated how the underlying economic and financial environment remained difficult for the Council, foremost being the improving, but still challenging, concerns over investment counterparty risk.  This background encouraged the Council to continue maintaining investments short term and with low risk counterparties, the downside of such a policy being that investment returns remained low. This situation had been further exacerbated by the economic impact of the Covi-19 pandemic, that had seen the Bank of England base rate fall to 0.1%.

As the Council continued to utilise the short term borrowing market to generate interest rate savings as part of approved budget plans, the level of short term borrowing will continue to rise. As a result of this, the Council increased its prudential indicator for borrowing volumes with a maturity date less than 12 months to 25% of total borrowing as part of the 2020/21 Treasury Management Strategy. Whilst the Covid-19 pandemic has seen severe impacts to the global economy, its reduction in the base rate had also led to a significantly reduced cost of short-term borrowing, enabling the Council to generate greater savings from its Strategy.

On 26th November PWLB had made a significant change to their long-term borrowing rates decreasing them all by 1%. The key features of this change were to allow local authorities to access cheaper long term borrowing but under a more restrictive borrowing arrangement that would allow the PWLB to prevent borrowing for commercial investments. The PWLB would no longer lend to any local authority that had any plans to buy investment assets primarily for yield anywhere in their capital programme. The immediate impact of this decision had seen PWLB 50 year borrowing levels fall to 1.5% and below but with that short-term borrow falling, to as little as 0.3% for 3 months, for example. The Council kept interest rates under constant review within its borrowing strategies and decisions on the mix of long-term and short-term borrowing.

The Strategic Director for Finance & Customer Services confirmed that the basis of the Treasury Management Strategy, the Investment Strategy and the PIs (aside from the under 12 months indicator referenced above) had not changed from that set out in the approved Treasury Management Strategy (February 2020). 

 Discussion took place with the following issues raised/clarified:-

-        The short term borrowing strategy would continue to be utilised whilst ever the current economic situation remained.  A trigger would be activated should interest rates start to rise on long term loans and the strategy reviewed

-        There had been slippage in the capital schemes as a result of Covid-19

-        The PWLB would no longer allow long term borrowing to a local authority whose capital programme contained projects solely for commercial investment

-        Rotherham’s portfolio of borrowing was mixed in terms of historical borrowing of higher interest rates which would be refinanced as and when appropriate

Resolved:-  That the report be noted.