Agenda item

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 sets out the position at 30 September 2023.

The Audit & Governance Committee is RECOMMENDED to note the council’s treasury management activity in the first half of 2023/24 and recommend Council to note council’s treasury management activity in the first half of 2023/24.

The report was presented to the Committee by the Treasury Manager, Tim Chapple. It was reported that the review covered the first half of the 2023/24 financial year.

The following points were reported to the Committee:

·       As of 30^th September 2023, the Council’s outstanding debt totalled £297m and the average rate of interest paid on long-term debt was 4.41%. No new external borrowing had been arranged in the first half of the year, whilst £4m of maturing Public Works Loan Board (PWLB) loans and a £5m LOBO (Lender’s Option//Borrower’s Option) had been repaid during the first half of the year.

·       The Treasury Management Strategy for 2023/24, agreed in February 2023 assumed an average base rate of 4.25%.

·       The 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 3.00%.

·       During the first half of the year, the Council achieved an average in-house return of 3.53% on average cash balances of £499.05m, producing gross interest receivable of £8.866m. In relation to external funds, the return for the six months was £1.836m, bringing total investment income to £10.702m. This compared to budgeted investment income of £7.073m, giving a net overachievement of £3.629m.

·       As of 30^th September 2023, the Council’s investment portfolio of £577.189m comprised £440.500m of fixed term deposits, £43.216m at short term notice in money market funds and £93.473m in pooled funds with a variable net asset value.

·       As of 30^th September 2023, the authority had 44 PWLB loans totalling £252.383m, 8 LOBO loans totally £40m and one £5m money market loan. The average rate of interest paid on PWLB debt was 4.72% and the average cost of LOBO debt in 2023/24 was 3.94%. The cost of debt on the money market loan was 3.95%. The combined weighted average for interest on long-term debt was 4.41%.

·       At the start of the year, the UK Bank Rate was 4.25%, which was in line with the forecast. With ongoing inflationary pressures impacting the UK economy,  interest rates had risen higher than forecasted to 5.00% in June. The new forecast was that rates would peak at 5.25% in August 2023, and would remain there until autumn 2024, where it was expected, they would slowly reduce to 2.50% by summer 2026.

·       The budgeted annual return on the in-house balance for 2023/24 was 3.00% and assumed an average annual in-house cash balance of £379.144m.

·       The actual average daily balance of temporary surplus cash invested in-house was £499.055m for the first half of 2023/24 and the average in-house return was 3.53%, producing gross interest receivable of £8.866m. Gross distributions from pooled funds totalling £1.836m were also received in the first half of the year, bringing total investment income to £10.702m. This compared to budgeted investment income of £7.073m, giving a net overachievement of £3.629m. This reflected a combination of higher than forecast cash balances, and higher than forecast interest rates.

·       As of 30^th September 2023, the total value of pooled fund investments was £93.473m. This was marginally down from the value as of 30^th June 2023 of £93.796m.

·       As of 30^th September 2023, the Council’s investment portfolio of £577.189m comprised £440.50m of fixed term deposits, £43.216m at short term notice in money market funds and £93.473m in pooled funds with a variable net asset value.

·       During the financial quarter, the Council operated within treasury limits and Prudential Indicators set out in the Council’s Treasury Management Strategy for 2023/24.

The following points were raised by the Committee:

·       Members raised the Bank of England’s statements that interest rates would not drop in the near future and questioned how this would impact the Council’s financial forecasts relating to borrowing and debt. The Treasury Manager re-iterated the Council’s forecast of interest rates remaining stable until summer 2024. It was also noted how the Russian invasion of Ukraine was causing rising interest rates.

·       Committee members referenced the impact of rising interest rates on loans to other councils. The Treasury Manager confirmed that loans for the last 6 months had been upwards of 5% in their interest rates.

·       The potential impact of the forthcoming general election before January 2025 on interest rates was pointed out by the Committee and whether policy announcements in the run-up to an election would influence the Bank of England’s interest rates decisions. The Treasury Manager noted that the market and the Bank of England considered speculation and polling on the potential change in government when making decisions. It was also made clear that forecasts tend to be inaccurate and that decisions on interest rates are based on a wide variety of factors.

The Committee thanked the Treasury Manager for the presentation of his report and the wider team for all of their hard work in compiling the mid-term review.

Resolved: that the Committee noted the Treasury Management Mid Term Review 2023/24.