Cabinet Report |
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Report of Head of Finance Author: Donna Ross E-mail: donna.ross@southandvale.gov.uk Wards affected: All Cabinet member responsible: Andy Crawford Tel: 07427 880274 E-mail: andy.crawford@whitehorsedc.gov.uk Dates: 16 February 2024
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Treasury management 2023/24 mid-year monitoring report
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Implications (further detail within the report) |
Financial |
Legal |
Climate and Ecological |
Equality and diversity |
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Yes |
No |
No |
No |
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Signing off officer |
Donna Ross |
Pat Connell |
Chloe Bunting |
Equalities team |
Purpose of report
1. This report covers the treasury management activity for the first half of 2023/24 in compliance with the requirements of the CIPFA (Chartered Institute of Public Finance and Accountancy) Code of Practice for Treasury Management 2021. It provides an update on the mid-year position and prudential indicators with a view to the remainder of the year.
Corporate objectives
2. Managing the finances of the authorities in accordance with their treasury management strategies will help to ensure that resources are available to deliver services and meet the councils’ strategic objectives.
Background
3. This report has been written in accordance with the requirements of the Chartered Institute of Public Finance and Accountancy’s (CIPFA) Code of Practice on Treasury Management (revised 2021) and covers the following:
· An economic update for the first part of the 2023/24 financial year;
· A review of the Treasury Management Strategy Statement and Annual Investment Strategy;
· A review of the councils’ investment portfolios for 2023/24;
· A review of the councils’ borrowing strategy for 2023/24;
· A review of compliance with Treasury and Prudential Limits for 2023/24.
4. The first main function of the treasury management service is to ensure the councils’ cash flow is adequately planned, with surplus monies being invested in low-risk counterparties, providing adequate liquidity initially before considering optimising investment return.
5. The second main function of the treasury management service is to ensure funding for the councils’ capital plans. These capital plans provide a guide to the borrowing need of the councils, essentially the longer-term cash flow planning to ensure the councils can meet their capital spending operations. This management of longer-term cash may involve arranging long or short-term loans, or using longer term cash flow surpluses, and on occasion any debt previously drawn may be restructured to meet risk or cost objectives.
6. Accordingly, treasury management is defined as:
“The management of the local authority’s borrowing, investments and cash flows, its banking, money market and capital market transactions; the effective control of the risks associated with those activities; and the pursuit of optimum performance consistent with those risks.”
7. The 2023/24 treasury management strategy was approved by each council in February 2023. This report summarises the treasury activity and performance for the first six months of 2023/24 against those prudential indicators and benchmarks set for the year. It also provides an opportunity to review and subsequently revise limits if required. Full council is required to approve this report and any amendments to the Treasury Management Strategy.
8. The councils continue to invest with regard to security, liquidity and yield, in that order.
Economic conditions during the period
9. The approved Treasury Management Strategies for 2023/24 were based on a Bank of England base rate forecast of 4.25 per cent from April 2023, rising to 4.5 per cent in June, with a fall to 4.0 per cent anticipated during the last quarter of the financial year.
10. At the beginning of the financial year UK base rate was 4.25 per cent; the Bank of England raised the rate by 0.25 per cent at its Monetary Policy Committee (MPC) meeting on 11th May, and by a further 0.50 per cent in June. UK base rate ended the first quarter of the financial year at 5.00 per cent.
11. In August base rate by rose by 0.25 per cent to end the first half of the financial year at 5.25 per cent. In its latest monetary policy meeting on 20 September, the Bank of England left interest rates unchanged at 5.25 per cent.
Interest rate forecasts
12. The councils’ treasury advisor, Link Asset Services, provides a regular forecast of interest rates.
13. ‘The latest forecast on 25 September sets out a view that short, medium and long dated interest rates will be elevated for some little while, as the Bank of England seeks to squeeze inflation out of the economy.’
14. ‘Our PWLB rate forecasts below are based on the Certainty Rate (the standard rate minus 20bps).’
15. This forecast shows an expectation that base rate will remain at 5.25 per cent for the remainder of this financial year and the first quarter of 2024/25. PWLB forecasts are based on Link Group’s view that markets have already built in nearly all the effects on gilt yields of likely increases in Bank Rate.
Treasury activity
16. The performance of the two councils for the first two quarters of the financial year is summarised in the tables below[1].
Quarter 1 to 30 June 2023
Quarter 2 to 30 September 2023
17. The forecast outturn position as at September 2023, based on known investments and maturities and an estimate for future earnings is shown in the table below:
19. VWHDC. The latest estimate is that income receivable on cash investments will be above budget by £2.1 million. This is predominantly due to higher than forecast balances and above budgeted interest rates achieved on new deposits.
Performance measurement
20. A list of investments as at 30 September 2023 is shown in Appendices A1 and A2.
21. The councils’ performance against benchmarks for the first six months of the year are detailed in Appendices A3 and A4. All investments were with approved counterparties. The average return on these investments is shown above in the table at paragraph 16.
Treasury management limits on activity
22. Each council is required by the Prudential Code to report on the limits set each year in their respective Treasury Management Strategies. The purpose of these limits is to ensure that the activity of the treasury functions remain within certain parameters, thereby mitigating risk and reducing the impact of an adverse movement in interest rates. However, if the limits set are too restrictive, they will impair the opportunities to reduce costs/improve performance. The performance against the limits for both councils are shown in Appendices B1 and B2.
Debt activity during 2023/24
23. During the first six months of 2023/24 there has been no need for either of the councils to borrow. The Head of Finance will continue to take a prudent approach to the councils’ debt strategies. The prudential indicators and limits set out in Appendices B1 and B2 provide the scope and flexibility for either of the councils to borrow in the short-term up to the maximum limits, if ever such a need arose within the cash flow management activities of the councils in order to achieve their service objectives.
Financial Implications
24. These are covered in the body of the report.
Legal implications
25. There are no significant legal implications as a result of the recommendations in this report. Compliance with the CIPFA Code of Practice for Treasury Management in the Public Services and the MHCLG Local Government Investment Guidance provides assurance that the councils’ investments are, and will continue to be, within their legal powers.
Climate and ecological impact implications
26. There are no climate or ecological implications arising from this report, however the Council can make significant impact via future investment opportunities and operational changes. Numerous changes have already been made to ensure that climate is a key consideration in key documents and processes (such as the procurement strategy), and this will become more evident in future decision making. As opportunities to support the climate ambitions of the councils arise, they will be considered and appropriately weighted to include any climate or ecological impacts.
27. In order to comply with treasury management professional guidance, the council’s investments must prioritise security, liquidity and yield in that order. Environmental, Social and Governance (ESG) factors represent a fourth consideration in the decision-making process and whilst this is something that the councils are exploring it is in the context of the need to comply with the priorities outlined in the guidance.
28. The councils had no direct investments during the financial year with companies engaged in environmentally harmful activities. The councils’ externally managed pooled investment fund managers are founding members of the Net Zero Asset Managers Initiative.
Equalities implications
29. This report is for information only and therefore there are no equalities implications.
Risks
30. During the first six months of the financial year, the councils operated within the treasury limits and prudential indicators set out in their treasury management strategies approved by council in February 2023. Security of capital remains the main objective. The council has not made any significant changes to its investment approach or risk appetite during the period covered by this report.
Conclusion
31. This report provides details of the treasury management activities for the period 1 April 2023 to 30 September 2023 and the mid-year prudential indicators to each respective council.
32. This report also provides the monitoring information for joint audit and governance committee to fulfil its role of scrutinising treasury management activity at each council.
Background papers
· Chartered Institute of Public Finance and Accounting (CIPFA) code of practice for treasury management in the public sector.
· DCLG Local Government Investment Guidance
· Treasury Management Investment Strategy 2023/24 (South Oxfordshire & Vale of White Horse, February 2023)
Appendices
A1 – SODC List of investments as at 30 June and 30 September 2023
A2 – VWHDC List of investments as at 30 June and 30 September 2023
A3 – SODC Performance against benchmark
A4 – VWHDC Performance against benchmark
B1 – SODC Prudential Indicators
B2 – VWHDC Prudential Indicators
C1 – Note on Prudential Indicators
