Agenda item

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) that provided an update on the Council’s Treasury Management activity in 2023/24 to the end of September 2023.

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. Treasury Management performance was reported as part of regular budget monitoring reports to the Committee.

The Council’s Treasury Management activity was undertaken in line with the Treasury Management and Commercial Investment Strategy and Policy for 2023/24, which was agreed by Cabinet as part of the Budget Report 2023/24 at its meeting of 21 February 2023 (their minute 97/23 referred). 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 provided economic analysis and specialist advice. A key element of the 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. Officers with involvement in treasury issues continued to attend on-line events focused on treasury management as appropriate.

The first table in Appendix 1 to the report, identified that there was no short-term borrowing outstanding at 29th September 2023. Current cash projections indicated that the Council may require short-term borrowing to cover cash shortfalls for the final quarter of 2023/24.

Other than an £18m loan from West Midlands Combined Authority on behalf of UKBIC, 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 had no immediate plans to take any new long-term borrowing, however, this would be kept under review. At 30th September 2023, the Council’s long-term liabilities totalled £310.3m which 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.

The PWLB remained the main source of loan finance for funding local authority capital investment. In August 2021 HM Treasury significantly revised guidance for the PWLB lending facility with more details and 12 examples of permitted and prohibited use of PWLB loans. Authorities that were purchasing or intending to purchase investment assets primarily for yield would not be able to access the PWLB except to refinance existing loans or externalise internal borrowing. Under the Treasury Management Strategy 2022/23 approved by Cabinet on 22 February 2022 (their minute 83/22) it was agreed the Council would not purchase investment assets primarily for yield.

For the twelve-month period to 30 September 2023, the Council’s investments earned an average rate of interest of 5.12%. This could be split down between Collective Investment Funds at 4.59% and other investments at 5.36% and was against a backdrop of the Bank of England base rate rising from 2.25% in September 2022 to 5.25% in September 2023. Whilst the Council’s Collective Investment Funds had continued to provide an annualised return of around 4.59%, their capital value (£26.9m) remains below the original sum invested (£30.0m). Whilst all seven funds were showing a capital value loss, there were now signs of recovery on all but two. Income received from these investments still far exceeded any reduced value.

Appendix 2 to the report showed theCouncil’s Lending List at 31st October 2023. 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 the list. Duration limits for counterparties on the Council’s lending list were 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 events in the Middle East, higher inflation and the current high interest rate environment were major influences on the economy and the Council’s ability to gain returns on investments. Through 2023, the Bank of England Monetary Policy Committee had raised bank interest rates on 5 occasions with the rate rising from 3.50% at the start of the year to 5.25% in August 2023. This rate was maintained in September and November 2023. The speed of inflation was slowing from a peak of 11% in 2022 to 4.6% in October 2023. The latest forecast from Arlingclose was for the Bank Interest Rate to remain at 5.25% until Quarter 3 2024 at which point, they were forecasting an initial reduction.

The Committee asked questions and were given assurances at the meeting from officers on matters that included: the security of loans to other local authorities: clarification of future PWLB loans and future commercial investments: interest rates associated with short-term and long-term investments; and interest rates for collective investment funds. Members requested that in respect of collective investment funds, details of the investment and interest rates with Schroders Unit Trusts Ltd, be circulated to them.

RESOLVED that the Audit and Procurement Committee notes the update against the Treasury Management Strategy 2023-24 at 30th September 2023.