Agenda item

Report attached.

Members considered a report of Councillor Vanessa Alexander, Portfolio Holder for Resources and Council Operations, providing an update on the Treasury Management activities since the start of this financial year.

 

In the absence of Councillor Alexander, the Leader of the Council provided a brief introduction to the report.

 

Councillor Khan referred to the impending reorganisation of local government and asked how this might affect the Treasury Management Strategy.  In particular, he asked if consideration was being given to bringing back investments into the Council’s accessible finances in order to support its priority projects.  Councillor Dad responded that local governmentreorganisation was going to occur and that in the interim the Controlling group of Hyndburn would continue to do all it could to benefit the residents of the Borough.  Martin Dyson, Executive Director (Resources) clarified that outstanding debts (currently £9.6m, not including other long term liabilities) would transfer to the new unitary authority upon reorganisation, but Hyndburn had a comparatively low level of debt, which should not be a concern to its successor body.  Investments would continue up until changeover, as the Council wished to continue to maximise its returns, however, there would be a point at which investments beyond 12 months’ duration would need to be considered carefully.

 

Councillor Khan noted that Hyndburn had done well to secure external funding and gain interest from its external investments.  He asked whether there would be sufficient time to spend surplus resources, if the Council chose to do so.  Councillors Whitehead, Fisher and Pritchard responded that preparation for reorganisation was a priority in the Corporate Strategy.  There was an asset management review under way and working groups would be set up to consider any relevant issues.  However, unallocated reserves were just short of £2m, not the significantly higher figure quoted recently by one councillor in the press.  Councillor Dad summed up by confirming that the Council did not currently have surplus money to spend.

 

Approval of the report was not deemed 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 2025/26 at its meeting in February 2025.

 

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 on a quarterly basis.

 

The indicators were purely for internal use and were 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, investing and cash activities of the authority, and the effective management of any associated risks.  In February 2025 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 2025 report.

 

Prudential Indicators Monitoring

 

Appendix 1 to the report set out the monitoring information for each of the prudential indicators and limits. They related to:

 

• External debt overall limits;
• Affordability (e.g. implications for Council Tax);
• Prudence and sustainability (e.g. implications for external borrowing);
• Capital expenditure; and
• Other indicators for Treasury Management.

 

Treasury Management Update

 

The forecast balance sheet position at 30^th June 2025 for treasury management activities was shown in the table below.

 

Forecast Treasury Balance Sheet Position 2025/26

 

Portfolio Position 2025/26 Q1	Original Estimate 2025/26   £'000	Position 30 June 2025   £'000
EXTERNAL DEBT
Borrowing	9,595	9,595
Other Long-Term Liabilities	1,967	2,207
Total External Debt	11,562	11,802
Capital Financing Requirement	9,190	9,430
Under/(Over) Borrowing	(2,372)	(2,372)
INVESTMENTS
Total Long-Term Investments	-	-
Total Short-Term Investments	-	38,440
Total Investments	-	38,440

 

 

The table demonstrated that 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 should exceed gross debt. However, in 2025/26 the gross debt had exceeded the Capital Financing Requirement.  This was due to the Council having historical debt with a maturity repayment profile (meaning all principal was paid at the loans maturity date) but the accounting treatment required that the Capital Financing Requirement was reduced each year by the payment of Minimum Revenue Provision (MRP).  Other Liabilities in prior years reflected finance liabilities relating to vehicles and plant and in the current year reflected the transfer of all leases onto the balance sheet to comply with the new IFRS 16 – Leases accounting standard.

 

The requirement to have a Capital Financing Requirement 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.

 

Investment balances were higher than had been forecast when the Prudential Indicators and strategy had been set.  This was mainly due to grants received in advance of capital spend being incurred, as well as slippage in the capital programme.

 

The Capital Programme 2025/26 was expected to be funded by the use of Government Grants (including Levelling Up Fund and UK Shared Prosperity Fund) and other external financing.  It had also been supported during the year by greater use of internal sources of capital finance (including capital receipts and use of the Council’s reserve balances).  No external borrowing was expected to be required during the year.

 

Investment Activities during The Period

 

During the first quarter of the year the Council had invested funds with other Local Authorities, the Government’s Debt Management Agency Deposit Facility and had used Money Market Funds and Bank deposit accounts.

 

Portfolio Position 30 June 2025	Position 30 June 2025   £'000
Local Authorities	26,000
Debt Management Agency Deposit Facility	10,360
Money Market Funds	2,000
Lancashire County Council Call Account	0
Bank Deposit Accounts	80
Total Short-Term Investments	38,440

 

 

Two further tables were included in the report, which gave more details of the investments the Council had in place at 30^th June 2025 with other local authorities and a number of future dated loans agreed at the end of the quarter.

 

The Council’s Finance Team had a number of checks in place before any loans to other local authorities were agreed, to prioritise the security of any funds invested.

 

Expected Movement in Interest Rates

 

The Council had appointed MUFG (formally 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 graph was included in the report, which gave MUFG’s latest available view of the expected future movement in interest rates.

 

The latest forecast set out a view that both short and long-dated interest rates would start to fall, as inflation had fallen closer to the Bank of England’s target of 2.00%.

 

Interest rate risk was minimised as the Council’s borrowings were fixed until a trigger point, where the lender would seek better rates.  Current interest rates would need to rise significantly for this to occur.  With rates expected to fall in the short-term this was unlikely to occur, but this would be monitored closely.

 

The revenue outturn position on the Council’s Treasury Management activities was as shown in the table below.

 

Forecast Treasury Revenue Outturn – 2025/26 Q1

 

Portfolio Position 2025/26	Working Budget 2025/26     £'000	Forecast Outturn 2025/26     £'000	Forecast (Under) / Over Spend   £'000
INTEREST RECEIVABLE
Interest Receivable on Temporary Lending	(700)	(797)	(97)
Other Interest Receivable	-	-	-
Total Interest Receivable	(700)	(797)	(97)
INTEREST PAYABLE
Interest Payable on Long-Term Borrowings	440	440	-
Interest Payable on Finance Leases	41	41	-
Other Interest Payable	-	-	-
Total Interest Payable	481	481	-
Minimum Revenue Provision	1,085	1,085	-
Net (Income) / Expenditure from Treasury Activities	866	769	(97)

 

 

Interest Receivable

 

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, mainly due to higher levels of funds being held and the Bank of England maintaining interest rates at higher levels than had been anticipated when the budget was set.  The Council’s strategy continued to focus on the security of deposits and the liquidity of funds.  The additional interest forecast to be generated was now expected to be £97,000 for the year ending March 2026.

 

The Council continued to invest surplus cash in top rated financial institutions.  The authority continued to spread its money around a number of institutions to ensure that its 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 could place unlimited funds with the Government Debt Management Agency Deposit Facility (DMADF).  This allowed greater flexibility for placing of funds with potential for higher returns with minimal risk.

 

Interest Payable

 

An estimate of interest on additional borrowing was included in the budget.  No new borrowing was expected to be required during the year.

 

Minimum Revenue Provision

 

There was currently no change in the forecast Minimum Revenue Provision charge for the year.

 

Performance against Prudential Indicators

 

The Council’s performance to date, and current forecasts for the year, against the Prudential Indicators set in the Treasury Management Strategy approved by full Council on 27^th February 2025 were shown in Appendix 1 of the report.  The Council had remained within the Prudential Indicators set out in the approved Treasury Management Strategy.

 

Liability Benchmark

 

The Council’s Treasury Management Strategy also set out a Liability Benchmark.  This compared the Council’s actual borrowing against an alternative strategy.  The liability benchmark was calculated showing the lowest risk level of borrowing.

 

The liability benchmark was a useful tool to help establish whether the Council was likely to be a long-term borrower or a long-term investor in the future, and so shape its strategy focus and decision making.  The liability benchmark itself represented an estimate of the cumulative amount of external borrowing the Council had to hold to fund its current capital and revenue plans, while keeping treasury investments at the minimum level required to manage day-to-day cash flow.

 

There had been no significant changes to the inputs to this calculation, therefore there had been no updates to this indicator.  A chart illustrating the liability benchmark was provided in the report, which reflected that presented in the approved Treasury Management Strategy.

 

There were no alternative options for consideration or reasons

 

Resolved                                    -    That the Cabinet notes the Treasury Management activities and position during the first quarter of 2025/26.