Agenda item

Report attached.

Members considered a report of Councillor Vanessa Alexander, Portfolio Holder for Resources and Council Operations, updating Cabinet on the Treasury Management provisional outturn position for 2025/26.

 

Councillor Alexander provided a brief introduction to the report and highlighted that performance against the prudential indicators was within the limits set and that treasury management had delivered prudent and affective compliance.  There were some cost pressures due to leases, but overall risk from borrowing was low, the Council had strong liquidity and no new borrowing was being undertaken.

 

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 2025/2026 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 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 had approved its current Treasury Management Strategy.  This had been 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 of the report showed 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 provisional outturn balance sheet position as at 31^st March 2026 for treasury management activities was shown in the table below.

 

Table 1 - Forecast Treasury Balance Sheet Position 2025/26

 

Borrowing Position – Q2 2025/26		Original Estimate 2025/26		Provisional Outturn Position 2025/26
		£'000		£'000
External Debt
Borrowing		9,595		9,595
Other Long-Term Liabilities		1,967		1,542
Total External Debt		11,562		11,137
Capital Financing Requirement		9,190		9,066
Under/(Over) Borrowing		(2,372)		(2,071)
INVESTMENTS
Total Short-Term Investments					28,726
Total Long-Term Investments
Total Investments				28,726
Net Investments/(Borrowing)			(11,562)		17,589

 

 

It could be seen from the above table that the Council was performing within the original targets set at the start of the year.  Within the prudential indicators there were several 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 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 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 currently, 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 based on 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 using 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 had been required during the year.

 

Investment Activities During the Period

 

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

 

Table 2 - Invested Funds 2026/26

 

Portfolio Position	Provisional Outturn  2025/2026
	£'000
Local Authorities	24,000
Debt Management Agency Deposit Facility	2,646
Money Market Funds	2,000
Lancashire County Council Call Account	0
Bank Deposit Accounts	80
Total Short-Term Investments	28,726

 

 

The table below showed the investments the Council had in place as of 31^st March 2026 with other local authorities:

 

Table 3 - Investments with Other Local Authorities

 

Local Authority		Date From	Date To	Amount £'000	Interest Rate
Loans Outstanding as at 31 March 2026
Surrey County Council		16-Feb-26	15-Apr-26	2,000	4.550%
Guildford Borough Council		22-Dec-25	22-Apr-26	2,000	4.500%
Kingston Upon Hull CC		23-Oct-25	23-Apr-26	2,000	4.600%
Broxbourne Council		07-Jul-25	07-May-26	2,000	4.150%
Uttlesford Borough Council		19-Nov-25	19-May-26	2,000	4.450%
West Northamptonshire Council		27-May-25	26-May-26	2,000	4.150%
North Lanarkshire Council		13-Jun-25	12-Jun-26	2,000	4.200%
Eastleigh Council		19-Jun-25	18-Jun-26	2,000	4.300%
Blackpool Council		12-Feb-26	13-Jul-26	2,000	4.750%
Perth & Kinross Council		28-Jul-26	27-Jul-26	2,000	4.150%
Antrim & Newtonabbey Borough Council		18-Mar-26	18-Dec-26	2,000	4.500%
Moray Council		06-Jan-26	05-Jan-27	2,000	4.600%
Total Local Authority Loans				24,000

 

 

The Council had no future-dated loans agreed at the end of the quarter.  Table 4 set out in the report showed a corresponding nil return.

 

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

 

To ensure the Council was considering any possible risk posed by the recent increase in Section 114 Notices being issued, the authority was undertaking additional due diligence, which included:

 

• Reviewing local press for any signs of financial distress;
• Analysing the latest financial statements of the local authority; and
• Assessing the overall financial health and stability of the local authority.

 

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 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 gradually fall, as inflation moved 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 might 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 shown in the table below.

 

Table 5 - Forecast Treasury Revenue Provisional Outturn – 2025/26

 

Portfolio Position 2025/26			Working Budget 2025/26	Provisional Outturn 2025/26	Forecast (Under) / Over Spend
			£'000	£'000	£'000
Interest Receivable
Interest Receivable on Temporary Lending			(700)	(1,600)	(900)
Other Interest Receivable			-	(30)	(30)
Total Interest Receivable			(700)	(1,630)	(930)
Interest Payable
Interest Payable on Long-Term Borrowings			440	439	(1)
Interest Payable on Finance Leases			41	216	175
Other Interest Payable			-	3	3
Total Interest Payable			481	658	177
Minimum Revenue Provision			1,085	1,142	57
Net (Income) / Expenditure from Treasury Activities			866	170	(696)

 

 

Interest Receivable

 

The Council had invested amounts of surplus cash on a short-term, temporary basis.  The Council’s strategy continued to focus on the security of deposits and the liquidity of funds.  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 had been set.  The actual income from investment interest for the year ending 31^st March 2026 was £1.6m; an increase of £900k against the original budget forecast.

 

The Council continued to invest surplus cash in top-rated financial institutions.  The authority continued to spread its money around several 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 (except for 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’s 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 had been included in the budget and whilst there were no new borrowing requirements for capital spend, the changes required for lease accounting and the timing of the leases being taken had resulted in a pressure against the 2025/26 revenue budget.

 

Minimum Revenue Provision

 

Minimum revenue provision charge was forecast to be higher than budget due to previously purchased vehicles being replaced with leased ones.  Plus there were an additional 4 Refuse Collection Vehicles (RCVs) for food waste that had also been leased.

 

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 to 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 had also set out a Liability Benchmark.  This compared the Council’s actual borrowing against an alternative strategy.  The liability benchmark had been 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 would have 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.

 

To compare the Council’s actual borrowing against an alternative strategy, a liability benchmark had been calculated showing the lowest risk level of borrowing.  This assumed the same forecasts as used throughout the report, but that cash and investment balances were kept to a minimum level of £10M at each year-end to maintain sufficient liquidity but minimise credit risk.

 

The long-term liability benchmark assumed no new capital expenditure funded by borrowing and that income, expenditure and reserves all increased by inflation of 1.0% each year.  This was shown in a chart included in the report, together with the maturity profile of the Council’s existing borrowing.  The chart showed that the Council had long-term borrowings, that were committed to a number of years ago, which were forecast to be above the liability benchmark, and therefore the Council would not be expecting to enter into new borrowings over the short term.

 

Borrowing levels were above the liability benchmark due to high cash balances as a result of grants received in advance of capital spend, as well as the Council holding healthy levels of reserves.

 

There were no alternative options for consideration or reasons.

 

Resolved                                    -    That Cabinet notes the Treasury Management activities provisional outturn position for 2025/26.