Agenda item

Report by the Executive Director of Resources & Section 151 Officer

Treasury management is defined as: “The management of the organisation’s borrowing, investments and cash flows, including its banking, money market and capital market transactions, the effective control of the risks associated with those activities, and the pursuit of optimum performance consistent with those risks.”

The Chartered Institute of Public Finance and Accountancy’s (CIPFA’s) ‘Code of Practice on Treasury Management 2021’ requires that committee to which some treasury management responsibilities are delegated, will receive regular monitoring reports on treasury management activities and risks. This report is the first for the 2025/26 financial year and sets out the position at 30 June 2025.

Throughout this report, the performance for the first quarter of the year to June 2025 is measured against the budget agreed by Council in February 2025.

As at 30 June 2025, the council’s outstanding debt totalled £270m and the average rate of interest paid on long-term debt during the quarter was 4.41%. No external borrowing was raised during the quarter, whilst £2m of maturing Public Works Loan Board (PWLB), was repaid. The council’s forecast debt financing position for 2025/26 is shown in Annex 1.

The Treasury Management Strategy for 2025/26 agreed in February 2025 assumed an average base rate of 4.00%.

The average daily balance of temporary surplus cash invested in-house was expected to be £303m in 2025/26, with an average in-house return on new and existing deposits of 3.25%. 

During the three months to 30 June 2025 the council achieved an average in-house return of 4.74% on average cash balances of £420.335m, producing gross interest receivable of £4.964m. In relation to external funds, the return for the three months was £0.670m, bringing total investment income to £5.634m. This compares to budgeted investment income of £3.191m, giving a net overachievement of £3.443m.

At 30 June 2025, the council’s investment portfolio totalled £518.048m.  This comprised £365.500m of fixed term deposits, £52.833m at short term notice in money market funds and £99.715m in pooled funds with a variable net asset value.  Annex 4 provides an analysis of the investment portfolio at 30 June 2025.

The Audit & Governance Committee is RECOMMENDED to note the council’s treasury management activity at the end of the first quarter of 2025/26.

The Treasury Manager introduced the report.

The Committee asked how it was that the Council had decided to cap borrowing at 5 per cent per year of the net operating budget. The Treasury Manager said that the Council set a potential indicator each year, which was based on capital finance requirements or the underlying need to borrow. He added that this was due to peak at £559 million, whereas external debt was expected to be £270 million, in 2025/26.

The Committee asked about environmental factors in relation to borrowing. The Treasury Manager said that the Chartered Institute of Public Finance and Accountancy (CIPFA) Code of Practice on Treasury Management stipulated that the security and liquidity of any loans should be prioritised above all other factors when loans were obtained. He said that if two investments presented the same level of liquidity and financial risk, the greenest one would be chosen in accordance with the Council’s environmental policies and objectives. He said that all loans obtained by the Council complied with the UN Charter on Ethical Investments. The Chair said that she wanted to see the Council invest in more green bonds.

The Committee asked whether the Council had plans to pay off some of its debt. The Treasury Manager said that the Council was earning 4.5 per cent more than it was paying on its historic debt for long-term capital projects. He said that Public Works Loan Board (PWLB) loans could be repaid early but that it would not be financially prudent to do so given that interest rates could rise on any future loans. He said that the capital programme was forecast to increase over the next 3-4 years to up to £600 million but that cash balances were forecast to go down over the same period, so the Council had no plans to pay off some of its debt.

The Committee asked if council tax could be reduced given that the Council was earning money on its debt. The Treasury Manager said that funds were borrowed to finance the Council’s capital programme, unlike council tax, which was for revenue spending. The Cabinet Member for Finance, Property and Transformation said that the government expected the Council to raise the maximum level of council tax and made any grants subject to that requirement, so it was not going to be reduced.

The Committee asked what the Council was doing to ensure that government put money towards negative Dedicated Schools Grant (DSG) balances relating to High Needs. The Head of Corporate Finance said that the Executive Director of Resources and Section 151 Officer was working with other local authorities to lobby government and highlight the risk that DSG balances posed to councils’ financial resilience. The Chair said that she expected DSG balances to be discussed further by the Committee in its November meeting.

The Treasury Manager said that he would take a question about the cost to the Council of managing existing funds away for a fuller response.

The Chair thanked the Treasury Manager for the report, for his work and that of his team.

RESOLVED to note the Council’s treasury management activity at the end of the first quarter of 2025/26.