Agenda item

The Council has adopted the Chartered Institute of Public Finance and Accountancy’s Treasury Management in the Public Services: Code of Practice (the CIPFA Code). This code requires the Council to approve, at a minimum, treasury management semi-annual and annual outturn reports.

Mr Tim Mpofu, Head of Finance (Pensions and Treasury), introduced the report.

The meeting heard:

·      A query was raised regarding why the Council’s rating was categorised as AA- whilst other local authorities had been allocated as A+. In response, the meeting heard that AAA was the best rating that could be awarded by a rating agency. The only counterparty that previously had this rating was the US Government. However, this rating had been downgraded to AA+ earlier in 2023.  The Council’s strategy was to mainly invest with the UK Government, which had an average rating of AA-, but the money market funds also had a similar rating. This averaged out to around Aa2. Generally, the ‘A’ category was considered to be investment grade. The ‘B’ category was more challenging in terms of the recovery rate if a counterparty was to go out of business and they were due money or deposits had been made. This highlighted the Council’s strategy was lower risk in relation to other strategies and this was partly because the Council had not deposited with other financial institutions which had lower ratings.

·      A query was raised regarding the appendix which discussed the maturity structure of borrowing. As the Council had a budget and there was some difficulty regarding the Council’s capital spend (some of which would be reliant on borrowing). Some decisions had been made in relation to freezing some of the spend due to the issues relating to borrowing. Although there was a balance that needed to be struck, the Council needed to make use of its financial resources. In response, the meeting heard that the primary aspect the Council was trying to balance was the cost certainty. Once the loans had been taken out, then it would be clear how much the loans would cost and for what period of time. This would allow the budget setting process to be more clear. This would be monitored closely considering the Council’s situation. The issues with borrowing in the current climate, given the rates, was that it was possible to borrow and deposit the money into the bank, but this meant that the money would not be deployed. At the same time, interest would have to be paid on the money borrowed. For loans taken out for a 50 year period, should schemes not be delivered in the first five years, then there would be a cost of carry. This meant that the Council was paying interest on money taken out which was not bent spent. One of the key things the Council looked for was the cash flows and how this was progressing over the course of the year. Earlier in the year, the Committee was informed about the amount of cash the Council had in the bank (around £70 million). This was enough for the Council’s needs and also limited the need to borrow money. At that time, a longer term loan would have been at the rate of 6%. Towards the end of the year, rates had come down and borrowing had been done at the lower rate. There were always long term implications to such decisions and efforts were always made to ensure that decisions made were well informed ones. 

·      The PWLB was the Public Works Loans Board. This was a government agency set up to lend to public sector bodies, including local government organisations. The agency looked at gilts (which was the UK government issued debt) and was a primary source of borrowing. The borrowing done in the last three years or so was from the PWLB or from other local authorities. 

·      In relation to a query regarding the confidence in the Council’s cash flow, the meeting heard that there was confidence regarding the amount of cash the Council had. In terms of cash balance, the Council had £70 million. Generally, the Council would require probably £20 million month to month and this would cover requirements under the current circumstances. There were options if there was a liquidity constraint. It would be possible to borrow from other local authorities or from the PWLB. It had been useful for the Council to have a higher cash balance as borrowing rates were now higher. The Council’s cash balances were higher than it had been in the last two years.

RESOLVED: 

To note the treasury management activity undertaken during the first half of the year to 30 September 2023 and the performance achieved which is attached as Appendix 1 to the report.