Agenda item

This report gives an overview of treasury management activity since 1 April 2024 and presents a review of the Treasury Strategy approved by Council on 29 February 2024.

Discussion:

The Head of Corporate Accounts introduced the report and highlighted one update. At table 6.5 (page 51 of the agenda pack refers) the forecast interest earned in round two was shown as £11.931m, this should now read £11.959m which represented an improvement of £28,000. As a result, the total finance and interest net expenditure forecast an underspend of £1.83m rather than the reported £1.802m.

The Head of Corporate Accounts reported that the Debt Maturity Profile remained focused on short term borrowing and there was a total £79m repayable by the end of the financial year, which represented a significant sum. Treasury advisors have projected a fall in interest rates during the next year so longer-term borrowing may be more favourable in the future. This would provide the Council some opportunity to balance the debt maturity profile.

Investment returns were just under 5% for the quarter, which remained towards the lower end of expectations in comparison to other authorities. This rate of return reflected the Council’s focus on lower risk investment as set out in the Treasury Strategy. There had been some concern previously regarding the valuation of property fund, however, one of the funds had recently increased in value. The progress of property funds was regularly reviewed.

In relation to fees and financing, the Head of Corporate Accounts highlighted the interest payable on fees was higher than budgeted, however, this was more than offset by higher levels of interest earned and overall, the position was a net benefit to the Council. The Council budget also benefited from a lower Minimum Revenue Payment than had been originally budgeted for, this was due to the lower than anticipated Capital outturn and was also a benefit to the Council’s budgetary position.

The following issues were discussed:

Benchmarking Return on Investment – it was commented that Medway was towards the lower end of investment return and a Member requested further information why this was the case. The Head of Corporate Accounts acknowledged that investment returns were towards the lower end of the expectations, however, they were within expectations and reflected the Council’s attitude to risk. Where other authorities had performed more strongly, it was not known the level of the risk the authorities had undertaken. Medway followed a low risk strategy with regards to investments.

Borrowing – in response to a question how the Council planned to repay loans due before the end of the financial year, the Head of Corporate Accounts explained that where the Council had the available cash flow, debt would be repaid. When this was not possible further loans would be undertaken, he added that the majority of debt which matured in the financial year would need to be financed through new borrowing.

Finance Costs – The authorised borrowing limit was discussed, the lower than expected Minimum Revenue Provision (MRP) and other factors had resulted in a £1.8m underspend in the fees and financing budget. The Chief Finance Officer explained this underspend was included in the revenue budget round two monitoring which had recently been considered by Cabinet. In addition, the fees and financing budget had been adjusted for the 2025-26 to reflect the position lower costs.

Economic projections – a Member commented that they were concerned the national economic performance may be weaker than forecast and government borrowing rates higher, he asked officers whether the projections to reduce debt through asset sales and borrowing costs took account of economic uncertainty. The Chief Finance Officer agreed that it was difficult to make projections, however the Council took advice from treasury advisors, government and the Office for Budget Responsibility and took account of the prevailing market conditions when making projections. The current draft budget for 2025-26 took account of that advice and the Council’s planned Capital Programme which was a significant driver of the Council’s fees and financing budget. The budget would be adjusted in line with advice whilst the draft budget is reviewed by Overview and Scrutiny Committee’s prior to being considered by Council in February.

Volatility of interest rates - a member noted the volatility of the gilt markets and asked whether the loan market was similarly volatile. The Head of Corporate Accounts explained the market was updated twice a day, so rates were fixed at that point.

Emergency Financial Support – a Member requested clarification concerning the position of Emergency Financial Support in the Council’s accounts. The Head of Corporate Accounts stated that it would be considered as a capitalised loan, however the exact nature of this was to be decided. The Chief Finance Officer added the government had recently confirmed that Emergency Finance Support would not have a punitive interest rate attached which reduced the Council’s repayment costs and the loan was repayable over a 20 year period.

Decision:

The Committee considered the report, noted its contents and noted that the report will also be referred to Cabinet and Full Council.