Agenda item

This report summarises the Council’s treasury management activities during 2023/24, as required, to ensure compliance with the Chartered Institute of Public Finance and Accountancy’s Treasury Management in the Public Services: Code of Practice (the CIPFA Code) which requires the Authority to approve a treasury management annual report after the end of each financial year.

Witnesses:

Nikki O’Connor, Strategic Finance Business Partner (Corporate)

Anna D’Alessandro, Interim Executive Director - Finance and Corporate Services

Key points raised in the discussion:

1.    The Strategic Finance Business Partner (Corporate) introduced the report which outlined the management of the Council's cash, including its borrowing and investment decisions. The Council complied with the Prudential Indicators throughout the 2023/24 financial year. Due to capital programme spend during the year the Council's underlying need to borrow increased. The Council did not undertake any long-term borrowing but utilised its short-term and internal borrowing to avoid locking in higher interest rates for longer periods. She explained that short-term borrowing was often at its peak at the end of March across local government and as a result rates were unusually high over financial year end, the short-term market rates had reduced in April.

2.    The Strategic Finance Business Partner (Corporate) noted that the Council’s investments of short-term cash balances during the year were wholly invested in Money Market Funds, spreading the risk and ensuring liquidity. The higher than budgeted interest payable costs on short-term borrowing due to high interest rates, was offset by increased interest receivable from investments. She confirmed that the Council was compliant with the Department for Levelling Up, Housing and Communities (DLUHC) revised regulations regarding Minimum Revenue Provision (MRP), the Council changed its MRP policy in 2021/22 in anticipation of that.

3.    A Committee member asked how many times the Council would have to breach the operational boundary for it to be an issue and if the Council had not gone near it or breached it in the last year was it a useful management tool. The Strategic Finance Business Partner (Corporate) confirmed that it remained a useful management tool, the operational boundary was an early warning sign and sat below the authorised limit which the Council must not breach. The operational boundary could be breached multiple times and its level was reset annually.

4.    A Committee member asked what an ‘appropriately low risk balance’ was. The Strategic Finance Business Partner (Corporate) explained that it was a judgement call, various factors were considered such as the future cash flow forecasts, length of borrowing required and prevailing interest rates. Based on the current capital commitments the Council’s underlying need to borrow would increase, the Council would have to engage in more long-term borrowing in the next few years. Ideally this was awaiting forecast reductions in interest rates and prior to that the Council was managing through the utilisation of short term and internal borrowing. The Council regularly engages with its Treasury advisors, Arlingclose, with meetings occurring at least monthly, after the Bank of England’s Monetary Policy Committee.

5.    A Committee member asked why there was such a high variance of £3.6 million for Interest Paid. He noted that the variance of Interest Received was due to the increase in interest rates and MRP was £2.5 million under budget due to a capital underspend in 2022/23. He asked why there was an underspend if the capital was allocated for funding projects and asked why that work was not completed. The Strategic Finance Business Partner (Corporate) explained that several assumptions and estimates were factored in when setting the budget: the interest rate, average cash balances and capital expenditure. She explained that the variances in Interest Paid and Interest Received were primarily due to the increase in the interest rate above what was forecasted. The slippage in the capital programme in 2022/23 meant that the MRP charge for 2023/24 was less than forecasted. She noted that the monthly outturn reports to Cabinet detailed the summary of the capital slippage across the directorates and she could share the list of the individual schemes if requested.

6.    The Chairman asked whether the Council reviewed the advice given by Arlingclose and asked how that impacted on what the Council’s investment decisions were in terms of cash. The Strategic Finance Business Partner (Corporate) explained that every few years the contract goes out to re-tender, in line with procurement requirements, however it was a limited market. When providing their forecast of interest rates, Arlingclose also provided the market averages and the range of different assumptions; the Council also reviews other market insight and made its own assumptions about whether Arlingclose’s forecasts were in line with its own. The Interim Executive Director - Finance and Corporate Services noted that there were around three providers in the market and Arlingclose was superior, the Council tested the market when it goes out to re-tender and triangulates their work.

RESOLVED:

Noted the content of the Treasury Management Outturn Report for 2023/24 and compliance with all Prudential Indicators.

Actions/further information to be provided:

None.