Agenda item

The Corporate Committee is requested:

a.    To note the Treasury Management activity undertaken during the first half of the financial year to 30 September 2022 and the performance achieved which is attached as Appendix 1 to this report.

b.    To note that all treasury activities were undertaken in line with the approved Treasury Management Strategy.

The Head of Pensions & Treasury informed the committee that the council had adopted the Chartered Institute of Public Finance and Accountancy’s Treasury Management in the Public Services: Code of Practice (the CIPFA Code) which requires the Council to approve reports on the performance of the treasury management function at least twice yearly (mid-year and at year end).

The Council’s Treasury Management Strategy for 2022/23 was approved by Full Council on 1 March 2022. The report provided an update on the Council’s treasury management activities and performance for the first half of the financial year to 30 September 2022 in accordance with the CIPFA Treasury Management Code of Practice.

The Head of Pensions & Treasury highlighted the following:

-       The cost of undertaking new borrowing had increased over the period driven largely by the following factors:

o   Higher levels of sustained inflation;

o   Bank Rate increases by the Bank of England as a result of the sustained higher levels of inflation. It was noted that at the start of the financial year the Bank of England’s Bank Rate was 0.75%, compared to the reported rate of 3% at the time of the meeting . This was a meaningful increase in the cost of borrowing over a short period; and

o   Political instability during the months of September and October largely as a result of the UK Government’s mini-budget.

-       It was noted that the Council had a far-reaching capital programme which required extensive borrowing to finance the plans. Any new borrowing would be undertaken in the context of the approved Treasury Management Strategy. It was noted that the strategy was formulated based on a different set of assumptions than those in the prevailing economic environment. The Head of Pensions & Treasury highlighted an example from the report where the interest rate on a 30-year loan from the Public Works Loans Board (PWLB) had increased from about 2.60% in April 2022 to 4.60% in September 2022.

-       It was further highlighted that the increase in the cost of borrowing would be limited to the cost of any new borrowing undertaken by the Council.. This was due to the Council not holding any variable rate loans. The Head of Pensions & Treasury affirmed that all treasury management activities during the period were undertaking in line with the approved Treasury Management Strategy.

In response to committee members questions the Head of Pensions & Treasury gave the following responses:

-       In the context of the Council’s treasury management activities, borrowing decisions were based on the prevailing interest rates and progress made on delivering the Council’s capital programme. Parameters for borrowing were set out in the approved Treasury Management Strategy. It was noted that borrowing decisions were taken within this framework and were made in consultation with the Council’s treasury advisors. The Head of Pensions & Treasury highlighted that  £70m of new long-term borrowing had been undertaken during the reporting period. The average interest rate for this new borrowing was lower than the current PWLB rates on offer at the time of the meeting.

-       It was noted that an increase in the cost of borrowing would likely result in additional interest costs for the Council, which may have implications on the Council’s overall service delivery. However, the cost of borrowing for the financial year 2022/23 was expected to be in line with the Council’s approved budget.

-       In response to a question on the impact of a recession on treasury management it was noted that the Council’s treasury advisors had advised that this would most likely result in the Bank of England lowering interest rates in a bid to stimulate the economy.. However, the medium-term expectation was that the Bank of England would continue to increase interest rates.

-       In response to a question regarding Lender Option, Buyer Option loans, the Head of Pensions & Treasury highlighted that the Council currently held LOBO loans with different option exercise dates, meaning the risk of these options being exercised was diversified thereby mitigating refinancing risk.

-       The Head of Pensions & Treasury noted that PFI and finance leases were part of the council’s debt but managed separately from the council’s treasury management function.

-       As part of Council’s cashflow management activities, excess cash was managed in accordance with the approved Treasury Management strategy taking into account the security and liquidity requirements of the Council. Excess cash can be invested or deposited with money market funds, the Debt Management Office (DMO), or other local authorities. It was noted that most of the Council’s treasury investments and deposits were placed with either money market funds or the debt management authority.

RESOLVED

The Corporate Committee:

a.    Noted the Treasury Management activity undertaken during the first half of the financial year to 30 September 2022 and the performance achieved outlined in the report.

b.    Noted that all treasury activities were undertaken in line with the approved Treasury Management Strategy.