Agenda item

This Council is required by regulations issued under the local Government Act 2003 to produce regular reports on treasury and debt management operations during the financial year. This report meets the requirements of the CIPFA code of practice on Treasury Management (the code).

The Council formally adopted the key recommendations of the Chartered Institute of Public Finance and Accountancy (CIPFA) Code of Practice on treasury management (revised 2017).  In line with the Code the Council adopted a treasury management policy statement that requires a mid-year report on treasury and debt management operations during the financial year.  Additionally, under part 1 of the Local Government Act 2003, the Council was required to have regard to the Prudential Code for capital finance including the setting of Prudential Indicators.  Relevant treasury management indicators were incorporated into the Treasury Management Strategy 2022-23 approved by Council on 3 March 2022.  This report was submitted in accordance with these requirements and provided a review of treasury management for the period ended 30 September 2022.  The following elements are covered by the report:

• A review of debt management operations

• A review of investment operations

• An update on the treasury management Prudential Code Indicators

• An economic update for the first part of the 2022/23 financial year

No additional borrowing was required during the first half of 2022/23.  All current Council borrowing was with the Public Works Loan Board (PWLB) and the average rate of interest paid on the debt portfolio was 2.47%.  Appendix A shows loans outstanding as at 30 September 2022.

As at 30 September 2022, the Council had short-term borrowing, which is defined as borrowing due to be repaid within 365 days, of £3.221m.  This was to be repaid in instalments of £1.611m on 28 March 2023 and 28 September 2023. The average annual rate of interest on these loan repayments was 3.03%.

As at 30 September 2022 the Council held short term investments of £77.424m (specified investments) and £5m (non-specified investments).   The Weighted Average Rate of Return was 2.17% compared with that of the Link (the Council’s treasury management advisors) Investment Benchmarking Analysis group which was 1.76%.  In the period ended 30 September 2022, £53.0m of short-term fixed deposits were placed; £64.0m of investments matured within this same period.  In the period ended 30 September 2022, there were no long-term fixed deposits placed and no long-term fixed deposits matured.

Prudential Code indicators specific to treasury management were designed to ensure that treasury management is carried out in accordance with professional practice.  Indicators for 2022/23, 2023/24 and 2024/25 were approved by Council on 3 March 2022 as part of the Treasury management Strategy 2022/23.

The Bank of England’s Monetary Policy Committee raised the base rate by 50 bps to 2.25% in September 2022 meeting, this was the 7th consecutive rate hike, and increased borrowing costs to the highest since 2008.  Retail sales reduced by 1.6% in August, the biggest decline so far this year, following a 0.4% rise in July.  In August 2022 initial estimates showed that the public sector spent more than it received in taxes and other income.  This resulted in £11.8 billion of borrowing, which was £5.8 billion more than the £6.0 billion forecast by the Office for Budget Responsibility (OBR).

The Council’s Treasury Management Strategy has the following approved ethical investment statement: “The Council, in making investments through its treasury management function full supports the ethos of socially responsible investments”.

However, it was proposed that the following ethical statement is included in the proposed 2023/24 Treasury Management Strategy:

Investment guidance, both statutory and from CIPFA makes clear that all investing must adopt the key Treasury Management principles of security, liquidity and yield (SLY) in this order of priority. The Council is however committed to Environmental, Social and Governance (ESG) factors. Through the Treasury Management Strategy, in terms of ESG investment considerations, ESG metrics, will be used where appropriate and available in the credit rating agency assessments when considering investment opportunities.

Members raised the following points during discussion:

·            It was unfortunate the Council had not managed to find an agreeable interest rate or make sufficient progress on the refurbishment of the Deepings Leisure Centre, due to the increased borrowing rate.

·       A press article in The Guardian had vastly overstated the Council’s investment in a Qatar-based bank, which unfortunately resulted in a negative impression of the Council’s investment.

·            The proposed alteration in text on the ethical statement was welcomed.

The Chief Finance Officer confirmed that security was the principal concern, financially and they were ultimately responsible for those decisions.  It was clarified that the Council invests in only highly rated financial institutions and not countries themselves.

It was proposed, seconded, and AGREED:

That the Committee:

a)         Noted and approved the contents of the mid-year review of treasury management activity for 2022-2023.

b)         Agreed to propose an inclusion of an amended ethical statement in the 2023/24 Treasury Management Strategy.