Agenda item

The Presiding Member invited the Leader to introduce the first report which outlined the Council’s treasury management activity for the first half of 2023/24 and confirmed that 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 2022/23 and detailed the movement from April to September 2023/24 and the reasons for those movements. This was the first of two reports received on treasury management during the year.

The report highlighted 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.

§  And concludes with an examination of activity against prudential indicators, confirming compliance.

The report was presented to Governance and Audit Committee at the October meeting and was endorsed by the Committee prior to Cabinet considering the report on 15 November.

The key highlights included the level of borrowing, which, as of 30 September 2023, decreased by £3.1m from the 2022/23 outturn position and was now £135.5m.

This decrease was in relation to:

§  A number of loans which were repaid in instalments over the life of the loan.

§  The redemption of two small PWLB maturity loans at the end of September, which did not need to be re-financed.

§  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 and November the Council received notification that three lenders of LOBOs, totalling £15m, had elected to increase the interest rates.

Following advice from the Council’s treasury advisors, the Council redeemed the loans, rather than accepting the increased interest rate. This was because the revised interest rate was higher than the current rate and either not dissimilar to current borrowing rates through the Public Works Loans Board (PWLB) or significantly higher. The Council managed these repayments through a combination of using available investment balances and applying for one new long-term PWLB loan of £5m.

Whilst not immediately refinancing two of these loans would ultimately accelerate the Council’s underlying 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.

The level of investments increased by £7.4m to £54.7m. It was anticipated however, that investment balances would naturally reduce as the year progressed, mainly due to progress in delivering capital schemes.

The report provided a forward-looking indicator, 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 on the long-term net borrowing requirement, which ultimately impacts 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, meant there was exposure 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 about 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.

Finally, the Authority measures and manages its exposure to treasury management risks using various Prudential Indicators, outlined 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.

Resolved:

Council noted the report on treasury management activities during the first half year period of 2023-24.