Agenda item

This report sets out the Council’s Treasury Management Strategy for 2025/26, which is 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). 

Speakers:

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

Andy Brown, Deputy Chief Executive and Executive Director - Resources

Owen Jenkins, Executive Director - Highways, Infrastructure and Planning

Key points raised in the discussion:

1.    The Strategic Finance Business Partner (Corporate) introduced the Treasury Management Strategy Statement (TMSS), which is produced as part of wider reaching Capital, Investment & Treasury Management Strategy as part of the budget planning process each year. She noted that the training session last week with Arlingclose covered the main elements of the TMSS and that there were no fundamental changes proposed to the TMSS compared to the current year strategy.

2.    The Strategic Finance Business Partner (Corporate) noted that the Council’s borrowing requirement was set to continue to rise over the medium term, driven by the proposed Capital Programme which had been through multiple iterations and scrutinised. The Council would continue to avoid holding large cash balances and manage the cost of carry by optimising internal resources to reduce overall borrowing. The Council currently has a high proportion of its borrowing held as short-term borrowing, this was considered an appropriate strategy given the recent high interest rates experienced and a consensus that they would fall over the next twelve to eighteen months. It was likely that the Council would take out further long-term borrowing over the next year, although this would remain under review and would depend on cash flow forecasts and the prevailing rates of interest.

3.    The Strategic Finance Business Partner (Corporate) noted that no changes were proposed to the Investment Strategy, the aim was to keep cash balances low and put liquidity and security considerations before yield achievable. Limits on the duration and amount of investments were set for each counterparty type. It was likely that the Council would continue to utilise Money Market Funds over the next year.

4.    The Chairman noted that the Capital Programme could be subject to change due to local government reorganisation and asked whether there was scope for that. The Deputy Chief Executive and Executive Director - Resources noted that the Council should factor that in going forward, the Section 25 statement in the budget set out that local government reorganisation should not detract the Council from setting the budget and delivering the Capital Programme.

5.    The Deputy Chief Executive and Executive Director - Resources clarified that as compared with previous reports, the Committee was being asked to comment on and note the TMSS, it was not being asked to approve the TMSS as the Cabinet would recommend it to the Council for its approval.

6.    A Committee member asked what the actual balance sheet figures were of properties owned by the Council. The Strategic Finance Business Partner (Corporate) confirmed that the Property, Plant and Equipment (PPE) figure was £2.1 billion as at March 2024 and that included the countryside estate, highways, bridges, land and buildings. The Deputy Chief Executive and Executive Director - Resources clarified that many items on the balance sheet did not translate into cash.

7.    A Committee member noted the need to balance short-term and long-term borrowing and asked whether an assessment of that balance was linked to risk or specific criteria, or was it the case that the Council made a judgement on the advice from Arlingclose. The Strategic Finance Business Partner (Corporate) noted that it was more the latter, the Council aimed to not have more than 60% of its total borrowing in short-term borrowing as the exposure to interest rate volatility was higher. However, this was an indicator rather than a set parameter, as the Council did not want to force itself to take on long-term debt to meet such a measure and incur higher interest costs for longer periods as a result. Borrowing was kept under constant review, considering what the market was suggesting regarding forecast changes to interest rates, cash-flow forecasts and the rate of capital spend.

8.    A Committee member queried how the risk associated with relying on Arlingclose was managed. The Strategic Finance Business Partner (Corporate) explained that Arlingclose was an advisor, officers in the Council’s Finance team were trained in treasury management and also reviewed the market. The Deputy Chief Executive and Executive Director - Resources noted that it was the Council’s choice to follow Arlingclose’s advice, when the Council sets the TMSS it could stretch the boundary of risk, for example through investing in property funds, the security of investments was the most prominent factor.

9.    A Committee member noted that when the Communities, Environment and Highways Select Committee undertook a deep dive into the Capital Programme, it recommended that local Members be informed on proposed major changes in their respective areas. The Deputy Chief Executive and Executive Director - Resources clarified that was the intention regarding capital projects. The Executive Director - Highways, Infrastructure and Planning clarified that local Members would be kept informed on changes to the Capital Programme, for example on slippages and removals.

10.  Regarding informing local Members of the changes to the Capital Programme, a Committee member asked whether that process had been followed for a while and if it had he sought evidence of that happening as he noted a case where it had not. The Vice-Chairman noted that the select committee should take up the matter more strongly, he suggested that he and the Committee member could discuss the matter with the select committee chairman.

11.  The Executive Director - Highways, Infrastructure and Planning noted that the Capital Programme had different parts, he would map out the process of what the local Member engagement process should be, that should be uniform across teams and he would communicate that process with all Members and upon the Vice-Chairman’s request would provide a report to the Committee. A Committee member noted that the assets within the Capital Programme were broad, he noted that if the process needed to be considered by the select committees he could pick that up with the Resources and Performance Select Committee.

12.  A Committee member asked how the balance between ambition and prudence regarding the Capital Programme was demonstrated. The Strategic Finance Business Partner (Corporate) noted that there were three strategic capital groups: property, infrastructure and IT, those had plans in place to deliver and reported into a Capital Programme Panel that challenges programme deliverability. Those programmes were complex and there were slippages, as reviewed and reported in the monthly budget monitoring reports to Cabinet.  This information was also utilised to inform cash-flow forecasts and treasury decisions.  

13.  A Committee member noted her concern that the decisions on investments made by the Cabinet and Council now, would be affected by local government reorganisation. The Deputy Chief Executive and Executive Director - Resources noted that the Council must approve the budget which included the Capital Programme and TMSS, that would be considered in February and would take the Council through the next financial year. He referred to the Government’s timetable for proposed local government reorganisation and devolution, whereby the earliest that changes would happen would be May 2026 regarding elections to shadow authorities which would then have those powers to make budgetary decisions, until then the continuing authority makes budgetary decisions.

14.  A Committee member referred to the long-term liability benchmark and asked how comfortable the Council was with the accuracy of the assumptions used and which assumptions most greatly impacted the benchmark. The Strategic Finance Business Partner (Corporate) explained that the assumptions with the biggest impact related to the Capital Programme spend as that drives the financing requirement and need to borrow. Other assumptions were around the Council’s internal resources and borrowing, and changes in the balance sheet.

RESOLVED:

The Audit and Governance Committee commented on and noted the Treasury Management Strategy Statement (TMSS) – Part 4 of the Capital, Investment and Treasury Strategy for 2025/26 including the Prudential Indicators, in advance of being considered by Cabinet and Full Council, as part of the Final Budget Setting papers.

Actions/further information to be provided:

1.    A1/25 - The Executive Director - Highways, Infrastructure and Planning will map out the process of what the local Member engagement process should be regarding the Capital Programme, that should be uniform across teams and he will communicate that process with all Members and will provide a report to the Committee.