Agenda item

Report of the Director of Finance

The Audit and Procurement Committee considered a report of the Chief Operating Officer (Section 151 Officer), which provided an update on the Council’s Treasury Management activity in 2021/22 to the end of September 2021.

The Council adopted the Chartered Institute of Public Finance and Accountancy’s “Treasury Management in the Public Services: Code of Practice” (the CIPFA Code).  This required the Council to approve an annual Treasury Management Strategy and a mid-year update report.

The Council’s Treasury Management activity is undertaken in line with the Treasury Management and Commercial Investment Strategy and Policy for 2021/22, which was agreed by Cabinet as part of the Budget Report 2021/22 at its meeting on 23^rd February 2021.  The Committee noted that there were no breaches of the strategy and policy to report.

The Council was supported in the Investment Strategy and Policy by its Treasury Management Advisors – Arlingclose. The advisors provide economic and specialist advice.  A key element of this was the provision of advice on credit risk and the supply of information on credit ratings.  Regular review meetings with the advisors continued to be held.  In addition, staff with involvement in treasury issues continued to attend on-line evens focussed on treasury management as appropriate.

Appendix 1 of the report submitted set out a detailed list of short-term borrowing and investments that the Council held at 1^st October 2021.  The first table in the Appendix identified that there was no short term borrowing outstanding as at 30^th September 2021.  Cash projections indicated that the Council may require short-term borrowing to cover cash shortfalls for the final quarter of 2021/22.  All short-term borrowings outstanding at the end of the 2020/21 financial year (£54m), were fully repaid by the end of the first quarter 2021/22.

No new long-term borrowing undertaken since 2009, due I part to the level of investment balances available to the Council.  The Council had no immediate plans to take an new long-term borrowing, however, this would be kept under review.  As at 30^th September 2021, the Council’s long-term liabilities totalled £331.7m.  This was mainly made up of long-term borrowing sourced from the Public Works Loan Board (PWLB); liabilities arising from the Private Finance Initiative (PFI) and Lender Option Borrower Option (LOBO’s) borrowing.

In November 2020, the rules governing local authority access to PWLB changed and borrowing interest rates were reduced by 1%. The Treasury Management Strategy 2021/22 approved by Cabinet on 23^rd February 2021 reflected this change and agreed that the Council would not buy investment assets primarily for yield. The Budget Report 2021/22 advised to not pursue this type of activity in the medium term and no current capital projects were affected by this. This would ensure that the Council’s access to the PWLB for capital funding was maintained.

The final three tables at Appendix 1 provided a detailed list of investments held as at 1^st October 2021 and identified a total investment of £76.3m.  This compared to £112.8m held a year ago.  The balances were a snapshot and impacted on by timing differences.  The 2020 figure showed inflated cash balances to reflect receipt of Government Covid 19 grant funds at that time.

Appendix 2 of the report set out the Council’s Lending List at 31^st December 2021.  The list showed those banking and government institutions that the Investment Strategy allows the Council to invest cash balances with.  The list was taken using specialist advice from Arlingclose and was split between UK and foreign institutions.  Arlingclose undertook a full review of their credit advice on unsecured deposits at UK banks and building societies in September 2021.  As a result, their duration advice for those institution was extended from 35 days to 100 days.  The Committee noted that the Council did not hold any funds with counterparties that were not on the Lending List.

The ongoing impact to the UK from Coronavirus, together with higher inflation, the likelihood of higher interest rates and the country’s trade position post-Brexit were major influences on the economy and the Council’s ability to gain returns on investments.

On the 16^th December 2021, the Monetary Policy Committee (MPC) agreed to raise bank interest rates from 0.10% to 0.25%.  Recent rising inflation prompted the move as the MPC raised concerns about strong labour market performance and persistent increases in prices. The decision was accompanied by comments about the path for Bank Rate which may see further rate rises over the coming months despite weakening economic activity.  Arlingclose expect the Bank Interest Rate to rise to 0.50% in Q1 2022, but then remain there.

For the first two quarters of 2020/21, the Council continued to be in receipt of central government funding to support small and medium businesses during the coronavirus pandemic through grant schemes. These funds have been temporarily invested in short-term liquid instruments, particularly in Money Market Funds. The upfront payment of grants had temporarily inflated the Council’s cash balances.

In considering the report, the Committee requested further information on the Council’s current treasury investments be circulated.

RESOLVED that, the Audit and Procurement Committee note the update against the Treasury Management Strategy 2021-22 as at 30^th September 2021 and request that further information on the Council’s current treasury investments be circulated to the Committee Members.