Agenda item

Treasury Management Update 2022-23 - Half Year Progress Report

Report of the Chief Operating Officer (Section 151 Officer)


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 2022/23 to the end of September 2022.


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 requires the Council to approve an annual Treasury Management Strategy and a mid-year update report.  Treasury Management performance was reported as part of regular budget monitoring reports to the Committee.


The Council’s Treasury Management activity is undertaken in line with the Treasury Management and Commercial Investment Strategy and Policy for 2022/23, which was agreed by Cabinet as part of the Budget Report 2022/23 at its meeting of 22nd February 2022.  There were no breaches of the strategy and policy to report.


The Council is supported in the Investment Strategy and Policy by its Treasury Management Advisors - Arlingclose. The advisors provide economic analysis and specialist advice.  A key element of this is the provision of advice on credit risk and the supply of information on credit ratings. Regular review meetings with the advisors continue to be held.


Appendix 1 is a detailed list of short-term borrowing and investments that the Council holds as at 1st October 2022.  The first table at Appendix 1 identifies that there is no short-term borrowing outstanding as at 30th September 2022. Cash projections indicated that the Council may require short-term borrowing to cover cash shortfalls for the final quarter of 2022/23.


The Committee noted that no new long-term borrowing had been undertaken since 2009, due in part to the level of investment balances available to the Council. The Council has no immediate plans to take any new long-term borrowing, however, this would be kept under review. As at 30th September 2022, the Council’s long-term liabilities totalled £327.1m.  This total is 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 2022/23 approved by Cabinet on 22nd February 2022 reflected this change and agreed that the Council would not buy investment assets primarily for yield. The Budget Report 2022/23 advised to not pursue this type of activity in the medium term and no current capital projects are affected by this. This would ensure that the Council’s access to the PWLB for capital funding is maintained.


The final three tables at Appendix 1 provide a detailed list of investments held as at 1st October 2022 and identified a total investment of £82.5m. This compares to £76.3m one year prior to this. These balances were a snapshot and impacted by timing differences.  For the twelve-month period to 30th September 2022, the Council’s investments earned an average rate of interest of 2.76%. This could be split down between Collective Investment Funds at 4.17% and other investments at 1.98%. This was against a backdrop of the Bank of England base rate rising from 0.1% in October 2021 to 2.25% in September 2022.


Appendix 2 showed the Council’s Lending List as at 31st December 2022.  This list showed those banking and government institutions that the Investment Strategy allowed the Council to invest cash balances with.  The list was taken using specialist advice from Arlingclose and was split between UK and foreign institutions.  The Council did not hold any funds with counterparties that were not on this list.  Duration limits for counterparties on the Council’s lending list are under regular review and would continue to reflect economic conditions and the credit outlook.


The ongoing impact of financial uncertainty in the UK together with the impact of the war in Ukraine, higher inflation and the current rising interest rate environment were major influences on the economy and the Council’s ability to gain returns on investments.


Through 2022, the Bank of England Monetary Policy Committee (MPC) had raised bank interest rates on 8 occasions with the rate rising from 0.25% at the start of the year to 3.50% in December.  Rising inflation through the year had prompted this trend as the MPC raised concerns about strong labour market performance and persistent increases in prices.  There may be further rises in the early part of 2023, although the rate is expected to stabilise in the middle part of the year.  The latest forecast from the Council’s Treasury Management Advisors, Arlingclose, was for the Bank Interest Rate to rise to 4.25% in 2023, but then remain there.


For the early part of 2021/22, the Council continued to be in receipt of central government funding to support small and medium businesses linked to the coronavirus pandemic through grant schemes and to payments to households relating to the energy rebate. The upfront payment of these grants which temporarily inflated the Council’s cash balances had now worked its way through and was no longer a factor.


RESOLVED that, the Audit and Procurement Committee note the update against the Treasury Management Strategy 2022-23 to the end of September 2022.

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