Agenda item

To present the report of the Director of Function (Resources)/Section 151 Officer.

The report of the Director of Function (Resources)/Section 151 Officer incorporating the mid-year review of treasury management activities and position was presented for the Committee’s consideration. The report was written in accordance with the requirements of CIPFA’s Code of Practice on Treasury Management (revised 2017) and provided an update on the position in light of the updated economic position and budgetary changes already approved.

The Director of Function (Resources)/Section 151 Officer advised that the Council’s investment strategy remains to ensure security of capital and liquidity and to obtain an appropriate level of return which is consistent with the Council’s risk appetite. In the current economic climate, it is considered appropriate to keep investments short term to cover cash flow needs but also to seek out value available in periods up to 12 months with high credit rated financial institutions. A full list of investments as at 30 September, 2022 was provided at Appendix 3 with a summary of investments and rates at Appendix 4. The table at 5.7 of the report shows a list of investments made during the first half of the financial year and given that security of funds is a key indicator for the Council and the lack of demand from other local authorities, bank call accounts are seen as the most secure way of investing funds. The approved limits within the Annual Investment Strategy were not breached during the first six months of the year; however it is being requested that in light of increased cash balances and demand from other local authorities, the limit for lending to other local authorities is increased from £5m to £10m in order to avail of the best possible investment opportunities. The Council’s investment return to the end of Quarter 2 is £200k with the budget projected to overachieve at year end. The rise in interest rates has led to improved returns and will increase the level of investment income the Council is able to budget for and achieve in 2023/24.

The Council continues to maintain a strategy of using available cash balances where possible to support capital expenditure. The Council has projected year end borrowings of £122.7m and will have used £24.2m of cash flow funds in lieu of borrowing. No borrowing was undertaken in the first half of the financial year and it is not anticipated that any additional borrowing will need to be undertaken during the second half of the financial year. The capital programme is being kept under regular review due to the effects of inflationary pressures and shortages of materials and labour and the Council’s borrowing strategy will also be regularly reviewed and then revised if necessary in order to achieve optimum value and risk exposure in the long-term.

It is a statutory duty for the Council to determine and keep under review the affordable borrowing limits. During the half year ended 30 September, 2022 the Council has operated within the treasury and prudential indicators set out in the Council’s 2022/23 Treasury Management Strategy Statement and no difficulties in complying with these indicators are envisaged for the current or future years.

The Committee in considering the report raised the following issues –

·      The reasons for and security of lending and borrowing between local authorities and whether increasing the limits for lending to other local authorities to £10m is a credit risk given that many authorities are under financial pressure and given that income from interest earned in the markets generally is forecast to be much higher in 2023/24 thereby reducing the need for exposure to a sector that is thought to be cash strapped.

The Director of Function (Resources)/Section 151 Officer advised that the Council undertakes due diligence with regard to the local authorities to which it provides loans by examining their most recent accounts, and that its lending is predominantly with other local authorities in Wales. Lending between authorities is generally regarded as a safe and low-risk option and as such it benefits the lending authority while the borrowing authority is able to obtain a better rate than might be found with other sources such as the PWLB especially in the short term for specific projects or for cash flow purposes at certain times of the year. The improved end of year investment income forecast includes the returns to be gained from investing with other local authorities. While the increased £10m limit will expand investment opportunities, the Council’s strategy remains to protect its capital and ensure sufficient liquidity ahead of maximising returns and it will not use the increased maximum limit simply to pursue returns for their own sake nor would it necessarily use the limit straightaway. The Section 151 Officer said that the risk of a local authority failing financially and being unable to repay its debts is very low.

·      Whether the Council’s estimates for capital expenditure are realistic given the regular underspend on the capital budget with only £17.465m spent as at 30 September, 2022 leaving £28.8m remaining to be spent in the second half of the financial year.

The Director of Function (Resources)/Section 151 Officer advised that the point raised previously about slippage has been noted; the Housing Revenue Account budget has been reviewed following which the Executive has agreed a reduction in the budget on the basis that there were not enough housing development schemes to take up the provision in the HRA Business Plan. While the underspend on the capital budget was in the region of 40% for 2021/22 it will be nearer 11% for 2022/23 which is a significant improvement. Issues have arisen this year around high tender prices which has made it necessary in some cases to review contract specifications leading to delays; weather issues linked to the winter period can also delay the progress of capital projects.

It was resolved –

• To recommend to the Executive that the change in counterparty limit to other local authorities as per section 5.3 of the report is put forward by the Executive and approved by the Full Council.
• To note the Treasury Management Mid-Year Review report 2022/23 and to forward the report to the Executive without further comment.