Agenda item

In April 2002 the Authority adopted 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, as a minimum, treasury management semi-annual and annual outturn reports.

This report includes the requirement in the 2021 Code of reporting of the treasury management prudential indicators. The non-treasury prudential indicators are incorporated in the Authority’s normal [revenue and capital monitoring] report.

Discussion:

The Head of Corporate Accounts introduced the report. He highlighted that the net borrowing position had increased by £118m due to capital spending, Exceptional Financial Suport (EFS) and the need to borrow in advance of the receipt of monies owed to the Council. The increase in borrowing meant borrowing levels rose above the Capital Finance Requirement (CFR).

The following issues were discussed:

Lender Option, Borrower Option (LOBO) – a Member commented that there were some loans which may be called in under LOBO rules over the next 12months, he asked what the costs of reservicing such loans with further borrowing would be. The Head of Corporate Accounts stated that four loans which had been taken out at rates ranging from 3.6% to 4.75% could be called in, though the former loan was more likely to be called in than the others. If that loan was called in, the additional costs associated with a higher interest rate would add a pressure of around £60,000. If all four loans were called in, further borrowing would be taken at today’s rates which would add a pressure of £130,000 to the budget.

Medway Development Company (MDC) – a Member requested an update on queries regarding the financial resilience of MDC discussed at previous meetings. The Chief Operating Officer stated that the cashflow analysis he requested had been undertaken and provided to Grant Thornton, however no conclusion had yet been reached.

Finance costs – a Member expressed concern at the rise in borrowing in the last year and, the cost of financing that borrowing. It was asked whether this would be affordable if interest rates were to rise. The Head of Corporate Accounts explained that the budget for 2025/26 had made assumptions that interest rates would fall, however this had not been the case, interest rates went up, this was exacerbated by an error in the budget build which had omitted some borrowing. Therefore, more borrowing at a higher cost than predicted was required leading to the overspend on the finance and interest budget of £6.3m for the year.

Debt repayment – in response to a question what debt had been repaid through property disposal, the Head of Corporate Accounts stated that £18m-£19m had been realised and £2.9m had been used as capital receipts as part of the transformation budget. £1m had been added to the capital programme and £13.6m allocated to debt which allowed the Council to not take out additional borrowing which would have otherwise been required. Throughout the year £257m in debt had been redeemed, some of which was short term, a few days up to a few months.  Some of that had been financed through new borrowing and it total £386m had been borrowed, which reflected the increased overall borrowing during the year.

Debtors – in response to a question about debtors to the Council, the Chief Operating Officer stated that finance were currently working on a briefing paper previously requested regarding an analysis of the debt owed to the Council.

Decision:

The Committee noted the treasury management outturn annual report.