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 report was presented by the Deputy Director of Finance and Deputy S151 Officer.

Treasury Management was the term used to cover the Council’s borrowing and investment strategies.  The Council had formally adopted the key recommendations of the Chartered Institute of Public Finance and Accountancy (CIPFA) Code of Practice on Treasury Management.  In line with the Code the Council had adopted a Treasury Management Policy Statement that required regular quarterly reports 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 2023/24 approved by Council on 1 March 2023.  This report was submitted in accordance with these requirements and provided a review of treasury management for the period ended 30 September 2023 and reviewed current developments.

The following elements were 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

No additional borrowing was required during the first half of 2023/24.  All current Council borrowing was with the Public Works Loan Board (PWLB) and the average rate of interest paid on the debt portfolio was 2.46%.  Regular reviews were undertaken to consider redemption costs of natural maturity against new borrowing to settle the outstanding debt early.  Short-term borrowing was defined as borrowing due to be repaid within 365 days.  As at 30 September 2023, the council had short-term borrowing of £3.221m.  This would be repaid in instalments of £1.611m on 28 March 2024 and 28 September 2024.  The average annual rate of interest on these loan repayments was 3.03%.

The average size of the investment portfolio for the 6-month period was £76.440m compared to an average portfolio size of £90.729m during the same period in 2022/23.  The decrease in the portfolio was due to the repayment of COVID-19 business grants following the reconciliation of the schemes and the payment of the Council Tax Rebate grant to eligible households during 2022/23.

The Council operated a diverse portfolio and used a number of methods to invest its reserves which include direct deposit, certificates of deposit, notice accounts and money market funds. As at 30 September 2023 the Council held short term investments of £76.440m (specified investments) and £3m (non-specified investments).

In the period ended 30 September 2023, £58.0m of short-term fixed deposits were placed; £49.0m of investments matured within this same period.  In the period ended 30 September 2023, 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 was carried out in accordance with professional practice.  Indicators for 2023/24, 2024/25 and 2025/26 were approved by Council on 1 March 2023 as part of the Treasury Management Strategy 2023/24.  All investment activity had been maintained within the indicator limits.

An economic update from Link (the Council’s Treasury Advisors) confirmed the following:

• Base rate increased to 5.25% during the first half of 2023/24, this rate was expected to remain the same until the second half of 2024

• CPI inflation declined from 8.7% in April to 6.7% in September which was the lowest rate since February 2022

• RPI inflation declined from 11.4 in April 2023 to 8.9% in September 2023 which was also the lowest rate since February 2022

The following points were raised during discussion:

·            Was the Council not able to invest any cash deposits over a longer-term to reduce any shortfall?

·            Was 3.7% an average figure, referencing the local authority section of the maturity analysis?  How many local authorities were included?

·            How was the £14 million calculated for the grant funds that were returned and were the Council able to retain the interest that accumulated?

·            A review of investment processes used by local authorities would be useful, particularly development investment within towns.

·            A Member acknowledged the use of expert treasury advisors who had to adhere to a code of practice.

·            A Member suggested that the Council look into the possibility of investing in houses if this was possible.  It was acknowledged that there may be a limit on how many properties the Council were permitted to purchase.

·            It was essential that all short-term investments met the recently approved ethical and fair tax investment motion agreed at the last Council meeting.  The Council should avoid funds that don’t fit the ethical demands of that motion.  How will the Treasury Management process respond to that policy? 

The Deputy Director of Finance and Deputy S151 Officer confirmed that any shortfalls between income and expenditure would be funded by reserves and not cash.  The reduction in investments of over £14 million was due to the holding of grant balances that were required to be repaid to central government.  The Council was only able to invest longer-term for up to six months as per recommendation from treasury advisors.  The Officer confirmed that a list of local authorities included within the maturity analysis would be circulated to Members. 

ACTION:

A list of Local authorities included within the maturity analysis would be circulated to Members.

It was not possible to confirm how the Government calculated their figures in reference to Business Rates but would have been based on the assumption that possible businesses applied or were eligible.  National businesses, for example, Specsavers, would have been eligible for a £25,000 grant within one of those schemes, but taking state aid into consideration they would only have been able to receive a very small amount of that grant funding.  Grant schemes frequently had an application process of very limited time and funding was received quickly.  There was an assumption that information was obtained from the Valuation Office who held all relevant information for each local authority.  It was confirmed that the Council was able to retain the interest received while holding grant funds. 

The Officer informed Members that the priorities of the treasury management process were ultimately security, followed by liquidity and then yield.  The Council must always invest in safe institutions in accordance with the advice received from the treasury advisors to endure security.  The Financial Conduct Authority were looking in regulations around ethical, social and governance (ESG) as it was a very complex matter.  It was possible to invest in an ethical institution but to not be wholly aware of where that institution was placing their funds.  It was confirmed that the Housing Revenue Account (HRA) was able to acquire houses to then rent out to tenants but there was a cap on how many purchases were allowed to be made.

The Deputy Chief Executive added that it was important to be able to access funds in the short-term rather than require additional borrowing which would carry a further cost to the Council.  The officer also informed Members that security, liquidity and yield were the primary code requirements within the treasury management process.  These rode precedent over any other ethical requirements.  It was clarified that the word ‘investment’ was not included within the motion agreed at Full Council meeting on 24 November 2023.  The Council had a duty of care to the taxpayers on their money being invested in financial institutions that were underpinned by the rating agencies such as CIPFA (Chartered Institute of Public Finance and Accountancy) and the treasury advisors that were employed to keep the Council’s funds safe.  This was ultimately to enable the Council’s services to be delivered.

The Deputy Director of Finance and Deputy S151 Officer informed Members that the Council had to comply not only with the CIPFA Code but also with the Local Government Act and the Prudential Code which set out how investments had to be placed.

ACTION:

The information from the Members’ Treasury Management training was to be circulated to those who were unable to attend training.

The Deputy Leader of the Council acknowledged that during the Covid Pandemic, Government was having to make decisions very quickly due to the urgent needs within each community.  It was acknowledged that the recent approval of the Fair Tax declaration for treasury management was welcome, however it was noted the motion was agreed only days ago on 24 November 2023.  The Cabinet Member informed Members they all had a responsibility to look at treasury management processes at other local authorities and learn from them.

The Deputy Chief Executive confirmed that as the proposal, put forward at Full Council, did not refer specifically to investments of this authority but referred to fair tax and governance, and on that understanding he was happy to endorse it.  The Officer clarified that he was happy that the ethical statement within the Treasury Strategy that was approved in March 2023 had enough parameters and governance within it as it had its own ethical requirements as per CIPFA.  It was essential that the Council kept a broad portfolio of investors to protect funds and reduce risk.

It was proposed and seconded and AGREED, in view of the motion agreed at Full Council that the Governance and Audit Committee request that Link, the Council’s Treasury Advisors, review the Council’s investment portfolio due to concerns raised and officers return their findings to a future meeting.

It was proposed, seconded and AGREED that the Committee noted and approved the contents of the quarter 2 review of treasury management activity for 2023/24.