Agenda item

Report by Director of Finance.

This report covers the treasury management activity for the third quarter of 2022/23 in compliance with the CIPFA Code of Practice on Treasury Management 2021.  It provides an update on the anticipated position and prudential indicators set out in the Treasury Management Strategy Statement & Annual Investment Strategy for 2022/23 agreed as part of the Council’s budget and Medium Term Financial Strategy in February 2022.

The Audit & Governance Committee is RECOMMENDED to note the report, and to RECOMMEND Council to note the Council’s treasury management activity in the third quarter of 2022/23.

The Committee received a report covering the treasury management activity for the third quarter of 2022/23.  It provided an update on the anticipated position and prudential indicators set out in the Treasury Management Strategy Statement & Annual Investment Strategy for 2022/23 agreed as part of the Council’s budget and Medium Term Financial Strategy in February 2022. 

Tim Chapple, Treasury Manager, presented the report.  He brought to Members’ attention that the report was written against a backdrop of a financial year with significant volatility.  It was measured against budgets that were approved in February 2022 when the forecast for interest rates was considerably lower than was the case currently.

Mr Chapple referred to £5m of external debt being repaid during the third quarter of the year, bringing it down to £308.38m at the end of December 2022.  Another £2m was expected to be repaid before the end of the financial year.  The original budget had assumed that there would be borrowing of an additional £46m this financial year but after reviewing balances over the medium term and the outlook for interest rates it had been decided it was not the right time to do so.  There was now an underspend of £600k in the interest payable budget.

He re-iterated that in terms of investments, security and liquidity were prioritised above all other considerations.  Balances were slightly higher than originally envisaged with the average in-house return being 1.25% in comparison to the budgeted rate of 0.35%.  This had produced gross interest receivable of £4.07m for the nine months to 31 December 2022 compared to the budget of £1.16m.  The in-house interest receivable for 2022/23 was currently forecast to be £6.70m, which was £5.16m above the £1.54m budget.  A significant chunk of this (approximately £3.5m) would be applied to developer contributions.  The remainder would be applied to revenue.

In respect of external funds, whilst some volatility was still being experienced in the capital value, they were continuing to produce income.  The figure was £2.9m interest compared to a budget of £2.5m.  They were forecast to be slightly above the year end budget of £3.8m.

In response to questions from the Committee, Mr Chapple and Lorna Baxter, Director of Finance, made the following points:

• The extra interest received was offset against the Council’s budgetary pressures.
•  The Council would have to pay a premium for LOBO (Lender’s Option/Borrower’s Option) and Public Works Loans Board (PWLB) early repayments.  There were occasions where LOBO loan providers wished to get rid of the loans from their books and potentially would reduce their premium.  In this scenario it could become beneficial for the Council to make an early repayment.  Bond yields were lower than in September 2022 and the risk of them being called was likely to have passed.  There were potential opportunities for debt repayments whilst the bond yields remained at their current level.
• The Government had decided to extend the statutory override on the external funds which meant that any fluctuations from the capital value did not transfer to the revenue budget.  The statutory override had been due to end at the conclusion of this financial year but it had been extended for two more years.  During that period the Council would need to decide what the approach should be to external funds, including whether to reduce exposure to them in order to mitigate risk or to build up reserves to offset any future fluctuations.  It was likely that there would be a recommendation in the future to build up reserves.

RESOLVED that:

1)    the Committee NOTED the report; and,

2)    Council be RECOMMENDED to NOTE the Council’s treasury management activity in the third quarter of 2022/23.