Agenda item

This report gives an overview of treasury management activity quarter one 2023-2024.

The Finance Business Partner – Technical Accounting introduced the report which provided an overview of treasury management activity in quarter one, 2023-24. He highlighted the current economic position which was that interest rates were thought to be near their peak and likely to stay elevated for some time.

The Council’s debt maturity profile noted £54million of debt was scheduled to mature in the current financial year with an additional £100million of debt maturing in 2024/25. As a consequence, although conditions favoured short terms loans, the Finance Business Partner – Technical Accounting was reluctant to take further loans which would mature in 2024/25 and new loans recently taken out were scheduled to mature in 2026/27.

Borrowing remained below the CFR (Capital Finance Requirement) during the quarter. Following the end of the quarter, one lender exercised their option to the rate payable known as the Lender Option Borrower Option (LOBO), the Council exercised its right to repay the loan which was refinanced.

Investment performance remained in line with peer authorities. The Council was a net borrower which would restrict the cash available to invest. The majority of monies invested was held as deposits in bank or in the property funds.

Capital Values of property funds had continued to decline, those capital losses were reported as reserve movements, however, if the Council sold those investments it would be recorded as revenue so there were no plans to sell those investments.

Members then raised a number of comments and questions, which included:

Length of loans – It was commented that new loans were of a slightly longer duration, and it had been an aim to reduce the amount of short-term borrowing. It was queried whether the Council was in a position to continue to this trend. The Finance Business Partner – Technical Accounting stated that he would prefer to have loans of an even longer term duration, however with interest rates currently high, the Council did not want to lock into very long term borrowing. The £100m loans maturing in the short term provided the Council with flexibility should it be required.

LOBO – in response to a question regarding the difference between loan redemption and refinancing, the Finance Business Partner – Technical Accounting reported the lender wanted to put up the interest rate to 6.35% and the Council paid off the loan and refinanced at around 5%.

Future interest rate risk – in response to a query regarding future interest rates and refinancing costs of £160million in loans scheduled to mature by 2026/27, the Finance Business Partner – Technical Accounting stated that advice received was that interest rates would be higher for some time so future loans would cost the Council more. Loans renewed this year had typically been around 2% higher.

Property fund investment – Members queried what the rate of return was on investment, the Finance Business Partner – Technical Accounting explained the 1% return was the dividend for the quarter. He added that the capital value had declined, though this was treated as a reserve movement, however, this was scheduled to end in March 2025.

Investment performance – in response to a query regarding what action could be taken to improve investment performance, the Finance Business Partner – Technical Accounting noted that the Council operated with very little cash on hand which limited opportunities for investment. Authorities that had more cash had more scope for investment but would require further loans so this was not advisable.

The Chief Operating Officer added that those local authorities which invested had probably borrowed more to facilitate that investment. This was contrary to CIPFA and Government guidance and a number of those authorities which had issued S114 notices had done so as a result of poor investments.

Decision

The Committee noted the treasury management report.