This report gives an overview of treasury management activity during 2022/23.
Members considered the report which provided an overview of treasury management activity during 2022-2023 and compliance with legislative and regulatory requirements.
The Finance Business Partner – Technical Accounting highlighted the Council’s borrowing did not exceed the Capital Finance Requirement (CFR). The CFR represented the value of long-term assets not funded by from grants, contributions, revenue funding or capital receipts. This demonstrated the Council had only borrowed to fund capital expenditure. In addition, the maximum outstanding borrowing during 2022-23 was £430.7m, well below the authorised borrowing limit of £690.6m.
He advised Members that for a short period at the end of March 2023, the treasury strategy limit of £100m of debt repayable within 12 months was exceeded by £600,000 due an error which had omitted £1.1m of historic debt to Kent County Council. From April 2023, the short-term borrowing limit had increased to £150m.
The Council primarily used short-term borrowing, which was more financially beneficial than using longer term borrowing, however, the potential for interest rates rises was a known risk. Rates had risen faster than expected but were now thought to be near their peak. The Council would continue to borrow on a short-term basis in the expectation that debt maturing would be replaced with loans at a lower interest rate.
The Finance Business Partner – Technical Accounting added that return on investment had been in line with expectations, the approach outlined in the treasury strategy was to keep borrowing at a minimum which limited opportunities for treasury investment.
The value of property fund investments had fallen from £25m to £23m in the year due to a fall in value of commercial property. Whilst the value of the capital funds had fallen, the fund currently generated income of around £800,000 a year.
Members then raised comments and questions which included the following:
Financing Costs – In response to a request for further information regarding financing costs as a proportion of net revenue stream (HRA), the Finance Business Partner – Technical Accounting explained the figure was an affordability ratio and showed the Council’s interest costs were a low percentage of the total income of the Council for the year.
Income from loans to subsidiaries – A Member commented that the return of £850,000 income from Kyndi and Medway Development Company (MDC) was positive and requested a breakdown of income from the two companies. The Finance Business Partner – Technical Accounting undertook to provide a briefing note which detailed income received from loans provided to Kyndi and MDC.
Cost of Carrying Loans – In response to a question whether carrying loans and holding a balance in the bank represented a significant cost to the Council, the Finance Business Partner – Technical Accounting explained that his aim was to keep any balance to a minimum, the Council had little other than day to day cash and this reduced the cost of carry which was the difference between borrowing costs and the income from deposits.
Minimum Revenue Provision (MRP) – It was noted that most of the surplus in the interest and finance budget related to an adjustment recommended by Link Services and it was queried what would be the effect of the end of this arrangement. The Finance Business Partner – Technical Accounting stated that further MRP adjustments would not be required in future years and an annual MRP level of £5m – £6m would be expected in the future.
Authorised Borrowing Limit - In response to a question whether the £420m borrowed would be considered high in relation to the authorised limit of £690m, the Finance Business Partner – Technical Accounting explained the affordability of the borrowing was a matter for budget decisions and the role of the CFR was to ensure the Council was borrowing for capital purposes rather than the revenue account.
Regulatory requirements – In response to a question whether the Council was meeting its regulatory requirements. The Finance Business Partner – Technical Accounting confirmed that the Council was meeting its regulatory requirements.
Economic Climate - In response to a question regarding the risk the current economic climate posed to the Council, the Chief Operating Officer stated the report showed that the Council had only borrowed for investment. The investment decisions made, were at the time prudent however, the global economic environment had changed, and interest rates and the cost of materials had risen. For some schemes such as MDC the value of rents and house prices had also risen, so the business case for those schemes could still be made. For other schemes such as the redevelopment of Splashes, the Council would need to consider whether an increase in income would also be generated in light of the increased costs. The Chief Operating Officer also noted the Council’s finances were under regular review as part of the risk register.
a) The Committee noted the treasury management outturn annual report.
b) The Committee requested a briefing note which detailed income received from the Kyndi and MDC.