Agenda item

Report by Director of Finance

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 report for the financial year 2023/24 and sets out the position at 30 June 2023.

Audit & Governance Committee is RECOMMENDED to note the council’s treasury management activity the first quarter of 2023/24.

The Chair welcomed the Cabinet Member for Finance, Councillor Miller. The Treasury Management Quarter 1 Performance Report was presented by Lorna Baxter, Director of Finance. It was reported that the performance was for the quarter to June 2023 and measured against the budget agreed by Council in February 2023.

The following points were reported to the Committee:

·       The Councils outstanding debt totalled £302m and the average rate of interest paid on long-term debt during the year was 4.41%. There had been no new external borrowing arranged during the quarter, whilst £4m of maturing Public Works Loans Board (PWLB) loans were repaid during the quarter. The Treasury Management Strategy for 2023/24 that was agreed in February 2023 assumed an average base rate of 4.25%.

·       The budgeted average daily balance of temporary surplus cash invested in-house was expected to be £480m in 2023/24, with an average in-house return of 3%.

·       During the quarter the Council achieved an average in-house return of 3.29% on average cash balances of £490.534m, producing gross interest receivable of £4.030m. In relation to external funds, the return for the quarter was £0.593m, bringing total investment income to £4.623m. This compares to budgeted investment income of £3.341m, giving a net overachievement of £1.282m.

·       At 30 June 2023, the councils investment portfolio of £580.537m comprised £436.500m of fixed term deposits, £50.242m at short term notice in money market funds and £93.795m in pooled funds with a variable net asset value.

·       Given the forecast for borrowing rates, the strategy for 2023/24 assumed no external borrowing during the year, with any increase in capital financing requirement met through internal borrowing.

·       The authority had 44 PWLB loans totalling £252.383m, 9 Lender’s Option/Borrower’s Option (LOBO) loans totalling £45m and one £5m money market loan. The average rate of interest paid on PWLB debt was 4.72% and the average on cost of the LOBO debt was 3.94%. The cost of debt on the money market loan was 3.95%. The combined weighted average interest paid on long term debt was 4.41%. The weighted average interest rate payable on matured loans was 5.63%. The forecast outturn for interest payable was £13.00m which was below the budgeted figure of £13.15m.

·       The Council continued to adopt a cautious approach to lending to financial institutions and continuously monitored credit quality information relating to counterparties.

·       The actual average daily balance of temporary surplus cash invested in-house was £490.534 for the first quarter and the average in-house return was 3.29%, producing gross interest receivable of £4.030m. Gross distributions from pooled funds totalling £0.593m were also realised in the quarter, bringing total investment income to £4.623m. This compares to budgeted investment income of £3.341m, giving a net overachievement of £1.282m.

·       The cash balances for the year were forecasted to be lower than they would have been as a result of negative DSG balances, forecasted to be £59.50m, which was an estimated opportunity cost of £1.76m in unearned interest for the year.

·       The Council operated a number of instant access call accounts and money market funds to deposit short-term cash surpluses. The average balance held on instant access was £69.704m, at an average of 4.33%.

·       The total value of pooled fund investments was £93.796m, this was down from 31 March 2023 due to global financial volatility as a result of the war in Ukraine.

·       The Councils investment portfolio of £580.537m, comprised £436.500m of fixed term deposits, £50.242m at short term notice in money market funds and £93.795m in pooled funds with variable net asset value.

The following points were raised by the Committee:

·       The Money Market Funds were clarified, where some were used for daily liquidity, so funds are used and then replaced. Some of these had not yet had the interest added hence were round figures. The Money Market Funds had no property market exposure.

·       The figures at page 19 of the Authorised limit for external debt should read £570,000,000 and the Operational limit for external debt should read £555,000,000. The Council were not near either of the limits.

·       No LOBO debts had been called in during Quarter 1, however, one had been called in the second quarter. For the last year, since there had been a risk of them being called, the ability to repay anyone that had a risk to be called, had been included in the cash flow. The one that had been called in the second quarter for £5,000,000 had been repaid. There was a potential £15m that could be called in the remainder of the financial year.

·       A very detailed cash flow profile was kept for 12-18 months, broken down to a daily basis. All were very comfortable with this. There was also a medium-term forecast going out five years so all was monitored very carefully.

·       The risk in lending to local authorities that may issue a section 114 was managed. There was no reason to strike of any that had or were going to as the security was unquestionable as the money would be returned and we would be prioritised to be repaid.

·       All cash invested by the treasury function is earmarked to be spent at some future point. Before they are due to be spent, they will be invested by the Treasury Management Team as agreed in the annual investment strategy.

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Resolved: that the Committee noted the Council’s Treasury Management activity for the first quarter of 2022/23.