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 2025/26 to the end of September 2025.

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 2025/26, which was agreed by Cabinet as part of the Budget Report 2025/26 at its meeting of 25^th February 2025.  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 was a detailed list of short-term borrowing and investments that the Council holds as at 30th September 2025.  There had been no short-term borrowing so far in 2025/26, although £20m of short-term borrowings taken out at the end of 2024/25 was repaid. It was anticipated that due to variables in the cashflow forecast for the remainder of 2025/26, that some short term borrowing may need to be sourced in Quarter 4.  It was emphasised that this was a snapshot of the Council’s cashflow and did not represent the Council’s overall financial situation. 

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. In March 2025, the Council repaid £12m stock issue closely followed by a repayment of £10m Lender Option Borrower Option (LOBO) debt in May 2025.  As at 30th September 2025, the Council’s long-term liabilities totalled £292.0m.  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 on 22^nd February 2022, it was agreed the Council will not purchase investment assets primarily for yield.

The final tables at Appendix 1 provided a detailed list of investments held as at 30th September 2025 and identified a total investment of £79.8m. This compares to £87.0m 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 2025, the Council’s investments earned an average rate of interest of 4.5%. This could be split down between Collective Investment Funds at 5.17% and other investments at 4.28%. This was against a backdrop of the Bank of England base rate being maintained at 4%.

Appendix 2 showed the Council’s Lending List as at 30th September 2025.  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 election of President Trump on 5th November 2024.  Events in the idle East, Ukraine and Russia also continued to add to this uncertainty to the global economy.  The first quarter of the year was dominated by the fallout of the US trade tariffs and their impact on the financial markets.  Equity markets declined sharply, which was subsequently followed by bond markets as investors were increasingly concerned about US fiscal policy.  The second quarter is still rife with uncertainty, equity markets made gains and a divergence in US and UK government bond yields started to occur, which had been moving relatively closely together.  From late June, amid a UK backdrop of economic uncertainty, concerns around the government’s fiscal position and speculation around the autumn Budget, yields on medium and longer-term gilts pushed higher, including the 30-year which hit its highest level for almost 30 years.

Initial thoughts following the Budget announcement 2024 was that inflation would increase and thus restrict the Bank of England Monetary Policy Committee’s (MPC) ability to reduce interest rates; the Bank of England has been cautious in lowering rates over the last 12 months. Base rate was lowered in August 2025 to 4.0% over the last 12 months rates have reduced on 4 occasions by 0.25bpts increments (Sept 2024: 5.0%). The latest forecast from the Council’s Treasury Management Advisors, Arlingclose, is for the Bank Interest Rate to reduce another 0.25bpt potentially in December or quarter 4 to 3.75%. They are predicting more drops over the long term but are predicting that base rate will level out at 3.75%.

UK headline annual consumer price inflation (CPI) increased over the period, rising from 2.6% in March to 3.8% in September (unchanged from August), still well above the Bank of England’s 2% target. Core inflation also rose, from 3.4% in March to 3.5% in September, slightly down from the August reading of 3.6%. Services’ inflation also fell from July to September, to 4.7% from 5.0%. The UK economy expanded by 0.7% in the first quarter of the calendar year and by 0.3% in the second quarter although it is expected to reduce in quarter 3 by 0.1%.

RESOLVED that, the Audit and Procurement Committee note the update against the Treasury Management Strategy 2025/26 at 30th September 2025.