Agenda item

To receive and make comments on the Treasury Management Strategy Statement 2025/26.

The Committee received and made comments on the Treasury Management Strategy Statement 2025/26.

It was explained the SIP for code required the Council to approve a Treasury Management Strategy (TMSS) at the beginning of each year. The TMSS was presented to the Committee for scrutiny, with any comments to be shared with the Audit Committee. The Scrutiny Committee was asked to review and provide feedback on the TMSS for 2025-2026.

It was also noted that the Audit Committee would consider the draft TMSS at their meeting on January 27th. The Treasury Management function involves managing the Council’s cash flows, borrowing, investments, and related risks. The Council had borrowed and invested significant sums, exposing it to financial risks, including the loss of investment funds and the impact of changing interest rates. Economic factors, such as the recent autumn budget and slower-than-expected interest rate changes, had influenced the TMSS for 2025-2026, with economic outlooks remaining uncertain.

Headline inflation continued to rise, and interest rates were expected to stay higher for longer. Markets predicted two more Bank rate cuts in 2025, with economists suggesting up to four cuts. By December 2024, the Bank rate remained at 4.75%, and bond yields had risen, prompting investors to seek higher returns. The Council’s borrowing needs were driven by the capital programme, with Section 3 of the TMSS detailing capital expenditure and funding. New Treasury investments had an average rate of 4%, down from 4.75% the previous year. Long-term loans were borrowed at an average rate of 5.5%, consistent with previous assumptions. An application for exceptional financial support had been submitted, requiring approval to borrow or use capital receipts for revenue spending.

An update on the Council's financial position was scheduled for scrutiny on January 30th, before the final draft budget was presented to Cabinet on February 11th. The borrowing strategy in the TMSS remained consistent with prior years, aiming to secure low interest rates and achieve cost certainty. The cost of borrowing had increased for both short- and long-term debt, mainly due to Public Works Loan Board rates. As of December, the Council held £956.9 million in borrowing and £72.6 million in Treasury investments. Section 3.10, a new addition to the TMSS, outlined the reporting requirements to the Committee, including training for officers and details about the exceptional financial support.

Concerns were raised about the exceptional financial support, noting that normally, councils would not be permitted to use borrowing for day-to-day revenue spending. They sought reassurance that the budget gap for 2025-2026 and 2026-2027 could be closed, as continued borrowing to fund revenue spending was not sustainable.

In Table 1 of the strategy, it was stated that exceptional financial support amounted to £20 million for both 2024-2025 and 2025-2026. The Council had requested this support due to current demand pressures, primarily in adult social care and temporary accommodation for homeless households. This situation mirrored that of other boroughs, both within and outside of London.

The government provided this support through a capitalisation directive, which allowed the Council to use capital, either through borrowing or capital receipts, or raise council tax.

In response to a question about the Council’s borrowing strategy, it was noted that the Council had struggled to borrow from certain sources due to being perceived as higher risk compared to other local authorities. The concern was whether this limited the borrowing options and if it was having a significant impact on securing the best value loans. It was explained that while the Council had fewer borrowing options, it still had access to Public Works Loan Board (PWLB) rates, which made up most of its borrowing. Despite being perceived as riskier due to its borrowing levels and reserves, this did not hinder the Council’s ability to borrow, and PWLB rates remained competitive.

In terms of financial strategy, borrowing to finance day-to-day expenditure via exceptional financial support was consistent with the general borrowing strategy. Previously, borrowing for exceptional financial support would incur an additional 1% premium on the PWLB rate, but this premium had been removed as of October. The process for borrowing remained the same, with the assumption that it would be through PWLB, without any additional costs for borrowing under exceptional circumstances.

RESOLVED:

The Committee raised the following comments to be discussed at the Audit Committee:

-       Concern over the liability benchmark and.

-       Whether the council are giving enough room for the funds that the Council had predetermined (liability benchmark).

-       Concern over the high level of debt and the fluctuations in interest rates