Consideration was given to the report presented by Rob Mahon, 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. Whilst the Council would continue to utilise the short term borrowing strategy to maximise savings within Treasury Management, the opportunity had arisen during the first half of 2021/22 to access some long term (50 years) PWLB rates. During July and August, 2021, £120M of long term PWLB borrowing was taken (£100M General Fund at 1.54%, £10M HRA at 1.81%, £10M HRA at 1.86%). This was to take advantage of the low PWLB borrowing rates available at the time and would be used to replace short term borrowing as it matured. The borrowing position would remain under review and an update of the Strategy would be submitted to Members within the Budget and Council Tax 2022/23 report to Council in March 2022.
All 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 Covid-19 pandemic, that had seen the Bank of England base rate fall to 0.1%.
The Council’s use of long term PWLB borrowing would result in the level of short term borrowing gradually falling as short term borrowing matured. With long term borrowing rates forecast to rise over the next 3 years, this strategy had taken advantage of historically low long term borrowing rates. This provided certainty of borrowing costs and mitigated the risk of borrowing having to be taken in the future at potentially higher rates. In the short term the cost of borrowing would increase as the long term borrowing was at a higher rate than the short term borrowing it was replaced though this impact was factored into the Council’s financial monitoring position.
PWLB rates fluctuated; during 2021/22 to date the rates had seen highs of 2.3% for a 50 year PWLB loan and lows of 1.5%. The immediate impact of this had seen short term borrowing falling to as little as 0.3% for 6 months. This had allowed the Council to make greater short term borrowing savings than anticipated whilst always being able to soak up additional interest rate costs of taking long term borrowing at the significantly low levels sooner than planned.
The Council continued to keep interest rates under constant review within its borrowing strategies and decisions on the mix of long term and short term borrowing.
It was 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 (March 2021).
Resolved:- That the report be noted.