Agenda item

The Presiding Member invited the Leader to introduce the report.

The Leader gave an outline of the Council’s treasury management activity for 2022/23 and treasury activities to confirm compliance with the Treasury Strategy previously considered and set by Members.

The report compared activity with the year-end position for 2021/22 and detailed the movement, and the reasons for those movements, throughout 2022-23. This is the second of two reports that Council received on treasury management during the year.

The Report on the Treasury Management Outturn Report, 2022/23 presented the following information:

o   Reminder of the treasury strategy agreed.

o   Details of borrowing and investment activity throughout the year.

o   Wider economic considerations e.g., pandemic, economic climate.

o   An update to the International Treasury code on commercial investment funding.

o   A medium to long term outlook for borrowing need.

o   An examination of activity against prudential indicators, confirming compliance.

o   The report also confirms that the Council invested in three covered bonds within the year 2022-23, totalling £10m, in line with the Council’s Treasury Management Strategy.

The report was presented to Governance and Audit Committee in May and was endorsed by the committee prior to the report being considered by Cabinet in June. The Governance and Audit Committee also received a training session delivered by the Council’s treasury management advisors, Arlingclose, which was well received.

The key highlights included the level of borrowing, which as of 31 March 2023, decreased by £3.5m in comparison to 2021-22 outturn levels, at £138.6m.  This decrease was in relation to a number of loans which were repaid in instalments over the life of the loan and the redemption of a small PWLB maturity loan at the end of September, which did not need to be re-financed.

The level of investments also decreased by £11m to £47.2m, by using up internal resources as a more cost-effective alternative to arranging new external borrowing. 

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

As previously mentioned, towards the end of the financial year, the Authority invested in three covered bonds totalling £10m, to comply with the MiFID II (Markets in Financial Instruments and Derivatives Directive) minimum investment balance requirement and to retain professional client status. The report detailed the benefits of having covered bonds within the investment portfolio – first and foremost that they provide a high level of security, whilst providing a good level of yield.

Within the report was a forward-looking indicator called the Liability Benchmark, which provided a graphical illustration of the Council’s existing and future borrowing requirement. Going forward, this would be shared with Council on a more regular basis following recent changes in guidance.

This is an important indicator to understand as it demonstrates the impact that decisions taken in relation to capital expenditure has on the long-term net borrowing requirement, which ultimately impacts upon the revenue budget in the form of capital financing costs.

To highlight some of the important points, this indicator showed that between 2023 and 2025, the gross need to borrow increased, but the calculated need for actual/real borrowing increased more sharply. This was because the Capital Programme commitments added to the need to borrow but at the same time, the internal borrowing capacity was predicted to reduce, as reserves were utilised, and investment levels reduced.

During the same window, actual borrowing reduced as loans were repaid. The combination of this, and the sharp increase in the need to borrow, meant that actual new borrowing in the region of £50m could be required by the end of 2025.

The Council’s underlying long term need to borrow, coupled with the need to refinance existing loans, means the Council will be exposed to a higher level of interest rate than experienced over recent years. Because of this, the Council continued to defer the need to take out long-term borrowing for as long as possible. It is hoped that, by adopting this approach, interest rates might reduce from their current levels by the time new borrowing is required, reducing to some extent the impact of undertaking new borrowing on the revenue budget. Any decision regarding undertaking additional long-term borrowing would be made in line with advice from the Council’s treasury advisors and only where there was a clear financial benefit and need to do so.

The final aspect to outline was prudential indicators. The Authority measured and managed its exposure to treasury management risks using various indicators which could be found in Appendix A.  The report confirmed that the Council complied with the prudential indicators set for 2022/23.

Comments from Councillors:

§  Councillor Reeks referred to point 20 Non-Treasury Investments within the report, and loans to developers of £10.3M.  Councillor Reeks asked whether officers provide a written response on assurances the Council have in place in the event that developers go bust.  The Leader advised that it would be put to the Head of Finance to provide a written response.

Resolved:

That Council noted the report on treasury management activities for the period 2022/23.