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) which requires the Council to approve treasury management reports on a semi-annual and annual basis.

Mr Tim Mpofu, Head of Finance (Pensions & Treasury), presented the item. 

The meeting heard that:

·      The local authorities that were benchmarked were those that were clients of Arlingclose, the Council’s treasury advisor. Those boroughs not associated with Arlingclose were not included as part of the quarterly benchmarking exercise.  

·      Section 2 of the appendix marked dates starting from June 2023 and should read from June 2022.

·      During course of the year, the gilt yields (which is a proxy for the cost of UK government debt) tended to fluctuate either through interest rate movements or the fiscal position of the UK government. During the time Liz Truss was Prime Minister, there was economic uncertainty around the UK government’s fiscal position when the budget was announced. This caused a sudden increase in gilt yields during September 2022 but the yields stabilised after a change in government. At the time of the meeting, the 10 year gilt yield was at 4.2% and ranged between 4% to 5% throughout the period. This was a direct result of the change in monetary policy over the past 18 month.

·      Officers were monitoring the economic situation on an ongoing basis and if gilt yields dropped, then it would be possible to capitalise on this and undertake further long term borrowing. At this point, the changes were so significant, that it was unlikely that interest rates would return to their pre-April 2022 levels.

·      Section on 6.4 of the appendix displayed the guiding principles which were based on the CIPFA code. In deciding on how to make treasury investments, the Council has a requirement to prioritise security (ensuring that the money was deposited with secure counterparties) then liquidity (meaning that the money could be accessed as required) so that there did not need to be any unnecessary borrowing. Once the security and liquidity requirements were met, investments would be placed taking into account the attractiveness of the prevailing yields (to make the best return on capital). The Council’s treasury investment policy was generally conservative. The deposits were in place with the Debt Management Office (DMO) which was a government agency that enabled the Council to place deposits overnight up to six months. The Council had increased the duration term of the deposits made to increase the Council’s interest receivable potential..  Other local authorities may place their deposit with banks and banks were considered to be riskier than the DMO and may not pass on the interest rate increases immediately.. Therefore, it appeared that the Council was taking less risk but receiving a higher return. 

·      The bail-in exposure was introduced when some banks were bailed out during the financial crises of 2008 and related to the probability of the assets being subject to that bail-in if the assets were they to go under. If the Council had a deposit with the bank, then it would be considered to be subject to a higher bail-in or rescue programme from the Government.

·      From a Treasury management perspective, the Council aimed to ensure that there is as much cash available as possible. On a short-term basis, it was possible to borrow from other Councils. This would generally be for a period of less than 12 months. The alternative was to borrow long-term, but the interest rates for these loans were higher than they had been in the past. When the budget was set that last year, there was an there was an assumption that all long term borrowing would average 4.50% but rates currently were higher than this assumption. It was a question of whether or not interest rates continued to increase, if the borrowing was greater than initially assumed and if the Council wished to borrow for longer term or shorter term basis. Shorter term rates were considered more expensive at around 6% at the time of the meeting and longer-term rates were at 5.5% without PWLB certainty rate. Borrowing for over a 50 year would also be at a high rate. 

·      The Treasury team’s role in the Council’s finance team was to advise on capital markets movements. HRA colleagues would be advised on the cost of borrowing based on the prevailing economic factors. Arlingclose produced an economic update examining interest rate forecast for the next 24 months. The relevant teams in the Council would be informed on what the future cost of borrowing assumptions would be which would feed directly into the business cases for capital schemes.

RESOLVED:

1.      To note the treasury management activity undertaken during the financial year to 31 March 2023 and the performance achieved which is attached as Appendix 1 to this report.

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