The Council’s Investment Strategy required regular reports to be presented to the Audit and Standards Committee on the Council’s treasury management activities. In managing these, the Council had implemented the Department of Levelling Up, Housing and Communities investment guidance and followed the Chartered Institute of Public Finance and Accountancy’s Code of Practice on Treasury Management.

The investment activity to date conformed to the approved strategy and the Council had had no liquidity difficulties. Investment activity was also reported to Members through the monthly Members’ Bulletin.  The report focused on the financial period ending 30 September 2022 and was based on the latest available data.

The report provided an update on a number of areas as follows:

•           As at 30 September 2022, the Council’s total investments were about £38m with £10m invested in short term call accounts, £6m in a fixed term deposit with a local authority and £8m in Property Funds. The remaining £14m was held in the General account, (a significant element of which related to cash owed to public bodies, e.g. council tax precepts, shares of business rates).

•           The total income from investments was forecast at £600,000 in 2022/23, mainly achieved from the Property Funds, yielding returns of between 3.06% and 3.68%. This might be affected by subsequent interest rate changes.

•           Due to the recent increases in interest rates, higher than expected returns (£190,000) were predicted to be gained from call accounts with a further £68,000 due on the maturity of a loan to a local authority in February 2023.  The investment portfolio and Property Fund values were detailed in Appendix A to the report.

•           The pandemic again slowed the pace of programme delivery in 2021/22 however, it had already accelerated in the first half of 2022/23 and was expected to continue doing so throughout the year.  Members noted that the capital programme would again be reviewed for affordability as part of the Medium-Term Financial Planning process.

•           The value of outstanding loans as at 30 September 2022 was £32.152m, well below the Council’s forecast CFR of £85.657m; the difference would decrease as the programme delivery accelerated and the Council’s borrowing requirement increased.

•           The ratio of Net Financing Costs (NFC) to the Net Revenue Stream was predicted to be 5.55% by the end of the financial year, which was 5.83% lower than the original budget. This was due to the delay in the capital programme delivery and the additional investment income achieved from the Property Funds and interest on call accounts, which reduced the NFC. 

•           The budget for rental income from all investment properties was £1,969,165; the Quarter 1 forecast income was £2,602,626.  The additional Non-Property Investment Strategy (PIS) rent income shown in the report was due to the rental income from the second floor of Amherst Road.  The additional PIS rent income was due to the purchase of Buckhurst Place.  Both leases were agreed after Council had approved its budget. Appendix D to the report gave more detail on those properties purchased as part of the PIS.

There had been no significant developments since the draft 2021/22 Treasury Management update reported to the Committee on 20 June 2022.  However, the economic outlook remained extremely uncertain and difficult to predict. Officers would continue to monitor closely all economic activity and report any major changes to Members at the earliest opportunity.

There was currently a Government consultation being held regarding the future of IFRS9 statutory override, due to expire on 31 March 2023, which allowed councils to override fair value movements on pooled investments in order to protect the revenue budget from market volatility.  Such movements were currently reversed from the General Fund and into unusable reserves, so they did not have an impact on budget setting. Without the override, negative movements in their value would cause a budget deficit and require more funds to be withdrawn from Usable reserves.  The consultation was due to close on 6 October 2022.

If the override was removed, the Chief Finance Officer (CFO) did not anticipate a negative impact on the 2022/23 or 2023/24 budget, but it was difficult to predict beyond that point.  The Council would engage their treasury management specialists, LINK Asset Services, for further consultation, together with the CCLA and Hermes Property Funds.

The Council currently enjoyed a positive value on the Pooled Investment Funds Adjustment Account of £1.25m which meant that their value was higher by that amount than what was originally invested.

Members noted that the Council had lent £6m to Thurrock Borough Council, to be paid back next year.  The CFO explained that all Local Authorities were effectively underwritten by central Government, therefore the loan was not considered to be at risk of default. The interest on the load was paid at 2.3% and would therefore generate £70k in income for the Council in the current year.  The CFO would consider using further inter authority lending in the future to generate better returns on investments.

The investment activity during the year conformed to the approved strategy and the Council had no liquidity difficulties.

RESOLVED: That the report be noted.