Agenda item

Report of the Director of Finance and Resources

The Audit and Procurement Committee considered a report of the Director of Finance and Resources which provided an update on the Council’s Treasury Management activity in 2024/25 to the end of September 2024.

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 30^th September 2024.  There had been no short-term borrowing so far in 2024/25. There are one or two variables in the forecast for the rest of the year, but it was anticipated that the Council may need to borrow some short-term cash at the year-end.  It was important to emphasise that this was a snapshot of the Council’s cashflow and did not represent the Council’s overall financial situation. In many cases the council received grant funding ahead of the expenditure being incurred.

The Committee noted that, other than an £18m loan from West Midlands Combined Authority (WMCA) 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 has no immediate plans to take any new long-term borrowing, until interest rates bottom out, forecast to be in the final quarter of 2025, however this would be kept under review. As at 30th September 2024, the Council’s long-term liabilities totalled £310.3m.  This total 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 Augst 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 are purchasing or intending to purchase investment assets primarily for yield will 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, it was agreed the Council will not purchase investment assets primarily for yield.

The final three tables at Appendix 1 provided a detailed list of investments held as at 30^th September 2024 and identified a total investment of £87.0m. This compares to £91.1m at this time the previous year. These balances were a snapshot and did not reflect the Council’s overall financial situation.  For the twelve-month period to 30th September 2024, the Council’s investments earned an average rate of interest of 5.11%. This could be split down between Collective Investment Funds at 5.30% and other investments at 5.02%. This was against a backdrop of the Bank of England base rate being maintained at 5.25% until 18^th September 2024, when it reduced to 5%.

Appendix 2 showed the Council’s Lending List as at 30^th September 2024.  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.

Financial markets were in a state of flux following the Budget announced by the Chancellor of the Exchequer on 30th October 2024 and pending the U.S. Presidency Election on 5th November 2024. Initial thoughts on the Budget announcement were that inflation would increase and thus restrict the Bank of England Monetary Policy Committee’s (MPC) ability to reduce interest rates as much as was hoped. Events in the Middle East and Ukraine also add to the uncertainty.

Throughout the majority of 2024, the Bank of England Monetary Policy Committee (MPC) maintained interest rates at 5.25% although there were reductions of 0.25% in August 2024 and a further reduction of 0.25% in November 2024 following favourable inflation data taking the rate to 4.75%. Latest inflation data shows a year-on-year increase of 1.7%. The latest forecast from the Council’s Treasury Management Advisors, Arlingclose, was for the Bank Interest Rate to fall but not as quickly as was first envisaged. Initial thoughts were that it would be in the region of 3% to 3.5% by December 2025 but this has now been updated in response to both the Chancellor’s budget and the US election to 3.75%.

RESOLVED that, the Audit and Procurement Committee note the update against the Treasury Management Strategy 2024/25 at 40^th September 2024.