Agenda item

Half Yearly Treasury Management Monitoring Report 2023/24


The Leader presented the Council’s treasury management report which outlined the activity for the first half of 2023-2024 and confirmed that the treasury activities completed so far during the year complied with the Treasury Strategy previously considered and set by Members.


The report compared activity with the year-end position for 2022-2023 and detailed the movement from April to September 2023-2024 and the reasons for those movements. This is the first of two reports received by Cabinet on treasury management during the year.


The report included the following information:


§  Reminder of the Treasury Strategy agreed.

§  Details of borrowing and investment activity throughout the year.

§  Wider economic considerations e.g. economic climate.

§  A medium to long-term outlook for borrowing need.

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


The report was presented to Governance and Audit Committee in October and was endorsed by them prior to the report being considered by Cabinet.


The key highlights included the level of borrowing, which, as of 30 September 2023, decreased by £3.1m from the 2022-2023 outturn position and was now £135.5m. This decrease is in relation to:


§  a number of loans which are repaid in instalments over the life of the loan,

§  the redemption of two small Public Works Loan Board (PWLB) maturity loans at the end of September, which did not need to re-financed, and

§  this was netted off by a minimal amount of new long-term borrowing that was taken out, totalling £300k from Salix which was interest free and linked to a specific energy efficiency project.


As at the end of September, the Council’s overall borrowing also included six Lender Option/Borrower Option (LOBO) loans totalling £30m. Whilst in the first half of the year these loans were not subject to any change in interest rates, in late October the Council received notification that the lender of a £5m LOBO had elected to increase the interest rate. Following advice from the Council’s treasury advisors, the Council redeemed the loan, rather than accept the increased interest rate. This was because the revised interest rate was higher than the current rate and not dissimilar to current borrowing rates via the PWLB. The Council had sufficient investment balances available at this point to be able to afford the repayment, without the need for new long-term borrowing.


The Council received notification earlier this month from another lender of a £5m LOBO loan who had also elected to change the interest rate. Again, following advice, the Council chose to redeem this loan as well, as the revised interest rate was higher than current borrowing rates from the PWLB.


Whilst redeeming these loans would ultimately accelerate the Council’s need to undertake new external borrowing, exiting from LOBO arrangements allowed the Council to de-risk an element of its borrowing portfolio, by taking away the risk of further interest rate rises on these specific loans.


With regard to investments, the report confirmed that the level of investments increased by £7.4m to £54.7m. However, it was anticipated that investment balances would naturally reduce as the year progressed, mainly due to progress in delivering capital schemes.


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. This was an important indicator to understand as it demonstrated the impact that decisions taken now in relation to capital expenditure had on the long-term net borrowing requirement, which ultimately impacted upon the revenue budget in the form of capital financing costs.


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


The final aspect outlined was the Prudential Indicators. The Authority measured and managed its exposure to treasury management risks using various indicators, as shown in Appendix A.  The report confirmed that for the first half of the year, the Council complied with the Prudential Indicators set for 2023/24.


Comments of Cabinet Members:


§  Councillor Davies thanked the finance team led by the Head of Finance, alongside the Audit team and Governance and Audit Committee. With prudence and care, the Council was borrowing and investing appropriately,.  Councillor Davies was grateful for the work the team undertook.


§  Councillor Batrouni mentioned that Newport was investing heavily in capital due to sound financial management.  The internal borrowing mechanism also minimised the way the Council paid. Councillor Batrouni added that bank rates might have peaked, however, they could spike further. Therefore, to be prudent to offset any increases in rates or loans was sound financial management.




Cabinet noted the report on treasury management activities during the first half year period of 2023-24 and provided feedback as required for the subsequent report to Council.

Supporting documents: