Agenda item

The Service Director - Finance Services provided Members with the opportunity to scrutinise the Treasury Management activities for the first six months of the 2022/23 financial year, the report for which was presented to Council at its meeting held on the 23^rd November 2022 and was reproduced at Appendix 1 for the Committee’s consideration.

The Service Director begun the overview of the report by stating the definition of Treasury Management, which was: “The management of the organisation’s borrowing, investments and cash flows, 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 Service Director drew Members’ attention to Section 5 of the report which detailed the economic background over the period. The Service Director noted that paragraph 5.5 highlighted the Bank Rate increases up to November 2022 and added that there had since been a further two increases, 0.5% in December 2022 that increased the Bank Rate to 3.5% and 0.5% in February 2023 that increased the Bank Rate to 4%.

Referring to Section 5.6 of the Report, the Service Director explained that most of the Council’s borrowing was from the PWLB (Public Works Loans Board) and that long-term borrowing rates were influenced by gilt yields which were expected to fluctuate only by small margins.

In respect of Section 6 of the Report, which detailed that the Council had not taken any short or long-term borrowing from the markets or from PWLB for the first half of the financial year, the Service Director confirmed that this was also the position to date.

The Service Director continued and stated that Sections 8, 9 and 10 of the Report demonstrated the Council’s compliance with Prudential and Treasury Management indicators that had been approved by full Council in March 2022, as required by the Treasury Management Code of Practice and Prudential Code.

As part of the low-risk strategy, the Service Director explained that the Council only invests surplus cash with other public bodies or the government’s own facility, the Debt management office. Members were referred to Section 12.4 of the Report, which highlighted that the return for the first six months of the year was slightly lower than the benchmark return.

Members were informed that interest rates for investments had increased from the half year point and, as such, investment income had improved. In response, a Member requested clarity on how the increase in interest rates would affect the Council’s prudential borrowing. The Service Director advised that the majority of the Council’s debt was fixed-rate and, as such, the rise in interest rates in the short-term would have no impact. The officer explained that the forecast for the PWLB rate was to remain fairly flat, which meant that although the rate the Council has on investment income would fluctuate with the base rate, its borrowing, determined by gilt yields and PWLB rates, would be impacted less. The Member also sought clarity on whether any future borrowing and investment would be affected in that regard. The Service Director explained that should the Council need to borrow, officers would consider the rate and maturity profile at that time, and noted that the current strategy was to borrow short-term, as and when funds are needed, avoiding unnecessary cost and reducing credit risk.

Lay Member, Mr M Jehu noted the financial complexities of the previous few years and questioned whether there were any specific changes in circumstances or lessons learned during the year for the Committee to be aware of. The Service Director noted that the base rate had increased significantly during the past few months, but assured Members that regardless of the environment, the three priorities of Security, Liquidity and Yield remained the focus and underlying approach which the Council adheres to.

The Lay Member sought assurance that all of the Council’s investment, financial management and liaising with outside bodies was based on an ethical standard and the Service Director confirmed that all work was in line with the Treasury Management Strategy and Capital Strategy approved by Council in March 2022.

A Member referenced the rise in energy costs and the shortfall in funding  being made available by UK Government to meet these increased costs, and questioned how likely it was that the Council would need to borrow in the near future for this purpose. The Service Director advised that borrowing undertaken by the Local Authority was for capital purposes only, with the requirement for increases in day-to-day energy costs to be funded from the Council’s revenue resources.

The Governance and Audit Committee RESOLVED:

1.    To scrutinise and comment on the information provided; and

2.    To consider whether they wish to receive further detail on any matters contained in the report.