Agenda item

Report attached.

Members considered a report ofCouncillor Peter Britcliffe, Deputy Leader of the Council and Portfolio Holder for Resources, updating Cabinet on activities around Prudential Indicators Monitoring and the Treasury Management Strategy since the start of this financial year.

Approval of the report was not considered to be a key decision.

Reasons for Decision

The Prudential Code for Capital Finance in Local Authorities required the Council to set Prudential Indicators annually for the forthcoming three years to demonstrate that the Council’s capital investment plans were affordable, prudent and sustainable.  The Council had adopted its prudential indicators for 2023/2024 at its meeting in February 2023.

The Prudential Code required the Council, having agreed at least a minimum number of mandatory prudential indicators (including limits and statements), to monitor them - in a locally determined format and frequency.  This Quarter 3 report to Cabinet complimented a more regular review by the Executive Director (Resources).

The indicators were purely for internal use and not designed to be used as comparators between authorities.   If it should be necessary to revise any of the indicators during the year, the Executive Director (Resources) would report and advise the Council further.

‘Treasury Management’ related to the borrowing and cash activities of the authority, and the   effective management of any associated risks.  On 23^rd February 2023 in the same report referred to above the Council had also set out and then approved its current Treasury Management Strategy.  This was in accordance with the CIPFA (Chartered Institute of Public Finance & Accountancy) code of practice on treasury management in public services, the Council having previously adopted, via Cabinet, the then revised code of practice.  Associated treasury management Prudential Indicators had been included in the February 2023 report.

Prudential Indicators Monitoring

Table 1 and Table 2 as (set out at Appendix 1 of the report) showed the monitoring information for each of the prudential indicators, limits and statements.   They related to:

• External debt overall limits – Table 1;

• Affordability   (eg implications for Council Tax) – Table 2;
• Prudence and sustainability  (eg implications for external borrowing);
• Capital expenditure; and
• Other particular indicators for Treasury Management.

Treasury Management Update

Current Treasury Position

As could be seen from the above table, the Council was performing within the original targets set at the start of the year.  Within the prudential indicators there were a number of key indicators to ensure that the Council operated its activities within well-defined limits.  In general, the requirement was that the Capital Financing Requirement (CFR) should exceed Gross Debt.  However, in 2023/24, the gross debt would exceed CFR.  This was due to the annual payment of Minimum Revenue Provision (MRP).  Other Liabilities reflected the transfer of contract hire leases to the balance sheet to comply with International Financial Reporting Standard (IFRS) 16.

The requirement to have CFR exceed Gross Debt centred around providing an assurance that borrowing was not taking place for Revenue purposes.  However, as the Council was not borrowing additional funds at this time, this was not an issue.

The current position of the treasury function, and its expected change in the future, introduced risk to the Council from an adverse movement in interest rates.  The Prudential Code was constructed on the basis of affordability, part of which was related to borrowing costs and investment returns. 

The Capital Programme 2023/24 had been funded by the use of Government Grants (including New Homes Bonus Grant and S.31 Local Government Act 2003 Grants) and other external financing.  It had also been supported during the year by greater use of internal sources of capital finance (including capital receipts reserve) because of the reduced level of external grant allocation.  No capital borrowing was forecast in year.

Expected movement in interest rates

The Council had appointed Link Asset Services as treasury adviser to the Council and part of their service was to assist the Council in formulating a view on interest rates.  A table was included in the report which gave Link’s latest available view (as at 7^th November 2023) of the expected future movement in interest rates.

The latest forecast expected that the Bank of England’s Monetary Policy Committee (MPC) would keep the bank rate at 5.25% until the middle of 2024 to combat on-going inflationary and wage pressures.  It was not anticipated that the bank rate would increase above 5.25%.

The Council’s exposure to interest rate movements was largely neutralised currently, as its borrowings were effectively at a fixed rate until a trigger point was reached, where the lender believed a better rate could be achieved elsewhere.  Interest rates would have to exceed 5.00% however although they were now at 5.25% nothing had been triggered.  The table included in the report indicated that rates were not going to go above 5.25%, so appeared unlikely that the borrowings would hit their trigger point.

The Council had invested amounts of surplus cash on a short-term, temporary basis.  The interest received from these investments was above the budgeted expectations for the full year to 31^st December, mainly due to the Bank of England increasing the interest rates.  The Council’s strategy continued to focus on the security of deposits and the liquidity of funds.  The additional interest generated as a result of rate increases and change in investment policy was now forecast at £1.472m for the year ending March 2024.  This increase had been used to offset the additional inflation pressures in the current year and future year’s financial forecasts.

The Council continued to invest surplus cash in the top rated financial institutions.  The authority continued to spread its money around a number of institutions to ensure that it was not potentially damaged by the unforeseen collapse of any one bank.  Deposits were also held with banks where the Council believed that the respective governments were likely to be able to guarantee deposits in the event of bank failure.  This strategy was continuing to yield an appropriate rate of return, though at a lower rate, as there was less risk attached to these deposits.  The Council also operated a policy of holding no more than £2m in any one bank (with the exception of the liquidity account held with Nat West Bank where the limit was £3m) to ensure that the risk was spread.

The Council had updated its policy on external investment by increasing the maximum limit for investment with the Government’s Debt Management Agency Deposit Facility (DMADF) from £2m to unlimited.  This had allowed greater flexibility for placing of funds with potential for higher returns with minimal risk.  This change in policy had been updated in the Treasury Management Strategy that had been approved at the Council’s Budget meeting in February 2023.

There were no alternative options for consideration or reasons

Resolved                                    -    That Cabinet notes the update report on Prudential Indicators Monitoring and the Treasury Management Strategy.