Agenda item

The Committee received the draft Treasury Management Strategy Statement for

2024/25 for comments, before it was presented to Full Council for final approval. The

report was introduced by Tim Mpofu, Head of Pensions and Treasury, as set out in the

agenda pack at pages 1-24. The following arose during the discussion of this item:

a)    The Committee sought clarification about the approval process for the Strategy Statement and whether it should have in fact been considered by Audit Committee first. In response, officers clarified that the CIPFA code set out that it had to be monitored by a body that oversaw treasury activities. It was the Council’s constitution that set out that it should also be considered by Scrutiny and that its comments be put forward to Audit Committee. The Strategy would be considered by Audit Committee at its meeting later that evening.

b)    The Committee sought clarification over what the key changes in the strategy were for next year. In response, officers advised that the strategy assumed that the cost of borrowing would increase significantly from 4.5% to 5.5%. The strategy also increased the limits of funds invested with counterparties from £5m to £10m. The short-term borrowing limits had reduced from £30m to £20m, in recognition that short-term borrowing had higher borrowing costs.

c)    The Committee sought assurances about the forecast bank rate at £5.25% and the degree to which these forecasts had been accurate in the past. In response, officers advised that the Council’s treasury management advisors provided the forecasts within an upper and lower limit and that the rates had stayed within those ranges in the past. The fact that the banking rate had peaked was widely agreed within the sector, but officers acknowledged that higher than expected inflation was still an issue.

d)    In response to a question, officers acknowledged that the levels of existing borrowing reduced year-on-year as a result of some of that borrowing maturing.

e)    In response to a question, the Members were advised that internal borrowing was the use of existing resources and cash balances that was used as part of the CFR but did not come from external sources of borrowing.

f)     The Committee sought assurances about the audit process. In response, officers advised that the strategy was audited in line with the Council’s annual external audit exercise, and that the Council also carried out internal audit exercises. Officers set out that the strategy made provision for what would happen if borrowing costs were reduced. In essence, the relative impact of cheaper borrowing would have to be considered against lower returns on investment.

g)    In response to a question about the affordability of significantly increasing borrowing rates, the Director of Finance advised that this was something that was best addressed as part of the wider MTFS report. The Director of Finance advised that borrowing in the General Fund Capital Programme had been scaled down by around £400m in recognition that the authority wanted to do all it could to reduce its debt exposure.

h)    In response to a question about short-term loans, officers advised that the authority had been actively reducing the amount of short-term borrowing and that the risk exposure from this was lower that it might have been as a result. Officers agreed to confirm in writing what the percentage of borrowing made up by short-term loan was. (Action: Tim Mpofu).

i)     The Committee queried why there was a negative balance in the liability benchmark table in the 2025 column. Officers clarified that this was an error and would be corrected for the final report.

j)     The Committee sought further assurances about what would happen in the eventuality of the borrowing costs increasing by more than the predicted range. It was suggested that even a relatively small change could have a significant impact on the affordability of such a large capital programme. In response, officers advised that that borrowing rates were considered as an average over the life of the MTFS, which provided some mitigation against short term borrowing increases. Officers also outlined that any increase in rates would only impact on new borrowing decisions as the Council did not hold any variable rate loans on its existing borrowing. The Director of Finance advised that the final budget report to Council would include a high-level assessment of risks and the Council’s ability to deal with them.

k)    The Committee recommended that future Treasury Management Strategy Statement reports include an assessment of the probabilities of unforeseen risks occurring and the likelihood of certain scenarios playing out, such as a 1% above expected increase in borrowing costs. It was suggested that something similar to this was done when reporting on the pension fund and Members would like that to be replicated for future TMSS reports.

RESOLVED

     I.        That the Overview and Scrutiny Committee was requested to scrutinise and provide any comments on the proposed updated Treasury Management Strategy Statement (TMSS) for 2024/25 prior to its presentation full Council for approval.

    II.        To note that Audit Committee would be considering the draft TMSS at its meeting on 18 January.