Agenda item

Report by the Executive Director of Resources & Section 151 Officer.

The Chartered Institute of Public Finance and Accountancy’s (CIPFA’s) ‘Code of Practice on Treasury Management 2021’ requires that the Council and Audit & Governance Committee receives a report on Treasury Management activities at least four times per year.  This report is the final report for the financial year 2023/24 and sets out the position at 31 March 2024.

Throughout this report performance for the 2023/24 financial year is measured against the budget agreed by Council in February 2023.

RECOMMENDATION

The Audit & Governance Committee is RECOMMENDED to note the report, and to RECOMMEND Council to note the council’s treasury management activity and outcomes in 2023/24.

The Treasury Manager presented the report to the Committee. This was the fourth and final monitoring report for the financial year 2023/24 and set out the position as of 31 March 2024. The report reflected the performance for the 2023/24 financial year which was measured against the budget agreed by Council in February 2023.

In terms of the Council’s outstanding debt, this totalled £284m and the average rate of interest paid on long-term debt during the year was 4.39%. £10m of maturing Public Works Loan Board (PWLB) loans and £10m of LOBO loans had been repaid during the year. No new external borrowing had been arranged during 2023/24. The Council’s debt financing position for 2023/24 was shown in Annex 1.

In terms of investment, in line with the CIPFA Code of Practice on Treasury Management, the Council prioritised security and liquidity of cash above the requirement to maximise returns during 2023/24. The original forecast assumed that there would be an average base rate of 4.25% for the year. However, persistent inflation saw that interest rates were held higher. They swiftly went up to 5.25% near the start of the financial year and remained there. Having higher interest rates and having slightly higher balances than were originally thought, allowed the Treasury function to receive a slightly higher return on its investment balances and as a result, our interest receivable on in house investments was £19.6 million, which was significantly above the budget of 11 million. Of that £19 million, £7.8 million had been applied to developer contribution balances so that we could retain the purchasing power of those monies.

The investments in external funds were maintained. They increased in value by £2.45 million, taking the value at the year end to £97.8 million and similarly in terms of the impact performance, the funds over produced against their budget. The IFRS9 statutory override is due to end in March 2025. In this regard, a reserve had been created with an initial funding of £5m, which would help smooth any potential unfunded pressures caused by fluctuations in fund value.

The Committee made the following points:

• The Committee agreed that it was an excellent report and congratulated the Team.
• Could the range of investments be spelt out a little more in terms of the money sitting in accounts and what it could be used for? For example, if the Council invested in corporate bonds to date.
• Local authorities had to prioritise security and liquidity first and only once those had been dealt with, a yield could be found. Corporate bonds could be purchased as they have an extremely high credit rating. The council has not invested in corporate bonds to date.
• There was £7 million of interest applied to developer contributions. Was that to backfill the impact on developer contributions from inflation? It was a historic arrangement that applied interest to developers’ contributions. Very little has been applied to developer contributions over the last 10 years as interest rates were so low.
• There were quite a lot of fixed term deposits with other councils that were maturing this year or had already matured. Do these have any impact on the kind of returns the Council was getting, was this going to have an impact? In the long term, it would do, if interest rates dropped as forecasted. Loans that have matured recently have been reinvested with other Local Authorities at around 5.25% on a 12-month basis. In the next financial year, the Council should still be able to get the high average return but obviously as interest rates go lower for longer, that will reduce. But the forecast was that rates were going to drop and so that was all factored into the budget.
• If these were maturing from loans set out when the interest rates were lower, were we now getting a better deal? There were some historic loans that were much lower rates that have dropped off and we’re obviously getting a higher rate. On the flip side of things, there will be a borrowing requirement in the medium term as the capital financing requirement goes up. As interest rates go down the borrowing costs should hopefully go down as well which should be positive. 
• The report had been to Cabinet and would be presented at Council in September.

RESOLVED: that the Audit & Governance Committee noted the report, and recommended Council to note the Council’s treasury management activity and outcomes in 2023/24.