Agenda item

Treasury Management Six Monthly Report - 2022/23


The Deputy Leader presented the report, which highlighted, as at 30 September 2022, that borrowing was £140.6m, a decrease of £1.5m in comparison to 2021-22 outturn levels.


This decrease was predominantly caused by the Equal Instalments of Principal (EIP) loans, which paid back principal over the life of the loan (and so incurred less interest costs), as an alternative to the Council’s maturity loans where the principal was repaid on the final day of the loan.


Officers have indicated that as interest rates increased, the likelihood that our Lender Offer Borrower Offer (LOBO) loans would be called in also increased. This meant that the lenders asked to amend the rates of these facilities upwards; in response, the borrower (the Council) either accepted that increased rate or redeemed the debt.


No such recall requests were made in the first half of 2022-23, but should they be made in the second half of the year, officers were anticipating they would be replaced with more traditional borrowing in due course, unless there was a sufficient incentive to accept the change in interest rate,


The current capital expenditure forecast involved a degree of slippage, so it was not expected that there would be a need to undertake further long-term borrowing this financial year. However, this did not exclude external borrowing being considered if the situation was advantageous in acting as a hedge to manage interest rate risks, recognising that the Council still had a longer-term borrowing necessity. Any such decision to do this would be made in line with advice from the Council’s treasury advisors and only where there was a clear financial benefit in doing so.

The level of investments at 30 September 2022 was £50m, which decreased by £8.2m since outturn 2021-22, as the Council uses up such resourcing as a more cost effective alternate to arranging new external borrowing. 


It was anticipated that investment levels would continue to reduce during 2022/23 as an alternative to borrowing until a minimum balance of £10m was ultimately reached, which would remain invested for compliance with Markets in Financial Instruments and Derivatives Directive (MiFIDII). 


Market expectations were for interest rates to start to revert to more traditional levels in the last quarter of 2022-23, and so it was prudent to avoid making any long-term borrowing decisions in the short term whilst rates were perceived to be higher than they are likely to be in the following year.


This approach is a cornerstone of effective internal borrowing; even in an environment of increasing interest rates, the cost of new borrowing was still more expensive than any increasing returns on investments. Therefore, it continues to make sense to use the Council’s existing surplus cash balances as an alternative to arranging new borrowing.


The final aspect considered was the Prudential Indicators. The Authority measured and managed its exposures to treasury management risks using various indicators which could be found in Appendix B.  The report confirmed that the Council continued to comply with the Prudential Indicators set for 2022/23, other than one particular metric designed to highlight the risk to levels of interest receivable from investments, should interest rates collectively fall by 1%. 


Officers explained in the report that the purpose of that particular indicator is to highlight how much the Council budgeted income levels would be adversely affected by any reduction in interest rates.


The deviation was more significant than the target due to an increased level of investments being made. This created a false impression as interest rates were currently experiencing a rising trend.  However, should those interest rates revert to historic levels, there would still be no risk to the Council’s finances in this financial year, as the current income target for interest receivable was being exceeded. Officers were aware that the risk would need to be closely monitored heading into 2023/24, if both investment levels and interest rates were to reduce. 


Councillor Batrouni seconded the report.



Council endorsed that the treasury management activities undertaken during the first half year period of 2022-23 were consistent with the 2022-23 Treasury Strategy framework agreed by Members.  Council had gained a comfort that those Strategy practices remained prudent to apply to second half year given the unanticipated volatility in interest rates and international economic circumstances.

Supporting documents: