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.  Members noted that that the figures quoted within the report were either actuals or estimates as stated and the outturn position at year end was draft subject to change following completion of the audit of 2022/23 accounts.

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

•     As at 30 June 2023, the Council’s total investments were around £22.5 million with £14.5m invested in short term call accounts (£20.6m and £12.6m respectively at Quarter 4 2022/23) and £8 million in Property Funds. Members were asked to note that a significant element of this balance related to cash owed to other public bodies, e.g. council tax precepts and shares of business rates.

•     The Council’s investments were currently predicted to have yielded interest income of £232,000 in Quarter 1 of this financial year, including income generated by the property funds (CCLA and Hermes).  The budget for the year was £586,000 so the Council was likely to have already achieved 39% of it.  This was mainly due to an increased focus on treasury management activities and the incremental Bank of England interest rates increases.  This amount could be inflated by a further £38,000 for the interest accruing on the loan provided so far to the Rother DC Housing Company Ltd.

•     It was highly likely that the budget would be achieved, but the range of possible outcomes was expected to be in excess of £510,000 surplus, as the Council looked to diversify its treasury deposits.

•     The total variance (surplus) estimated in the Revenue and Capital Monitoring report for Quarter 1 was £710,000, as it included interest accruing on the Housing Company loan (estimated to be around £200,000 for the year).

•     The Council’s Capital Financing Requirement (CFR) showed how much of its capital expenditure was financed by borrowing, summarised in Appendix B to the report. The capital programme budget had been reviewed during Quarter 1 in view of the complexity of several of the proposed schemes and the rapidly changing financial landscape in terms of inflationary pressures, interest and borrowing rate changes; the CFR position had changed as a result. The forecast outturn for the year was now £57.0 million. Members noted that the capital programme continued to be reviewed for affordability as part of ongoing monitoring of the capital programme and a revised budget for the CFR would be developed as part of this work.

•     The value of outstanding loans as at 30 June 2023 was £31.8m.  This was £11.6m lower than the CFR meaning the Council was ‘under-borrowed,’ and effectively borrowed internally using up its cash balances rather than borrowing when interest rates were high.

•     The ratio of Net Financing Costs (NFC) to the Net Revenue Stream in the original budget was to be 5.06% but was now predicted to be -0.99%. This was both due to the review of and subsequent delay in the capital programme delivery and the additional investment income received, which reduced the NFC.

•     The Council’s non-treasury investments were detailed in the report and split between existing assets and those purchased through the Property Investment Strategy (PIS).  Non-PIS assets yielded a 5.26% return on investment and PIS assets a 5.29% return.     

•     The ongoing impact on the UK from the war in Ukraine, together with the highest inflation for the last 40 years, rising interest rates, uncertainties over government policy, and an uncertain economic outlook, continued to impact on current treasury management activities. At the recent meeting of the Bank of England’s MPC in August 2023, it was agreed to increase the bank base rate by a further 0.25% to 5.25% to help control inflation. For comparison, in December 2021 it was 0.1%. It was the fourteenth rise in interest rates since then and the Council’s Treasury advisers predicted that the Bank rate was likely to peak between 5.50% and 6%.

•     Forecasting economic activity in the current climate was fraught with difficulties. Officers would continue to monitor closely any future changes and would factor them into the Council’s next update of the Medium-Term Financial Plan in due course.

•     The impacts on the Council of the factors outlined to Members were higher costs of providing services, higher potential borrowing costs, which may render some capital projects unviable and have a possible negative impact on council tax collection rates, as the cost-of-living crisis hits thousands of families across the district.

•     The value of investments in Property Funds had remained stable since the end of the last financial year and was £7.457m. The value was therefore currently £542,596 less than originally invested. Members were reminded that any gains or losses on such long-term investments would only be realised at the point of withdrawal from the fund.

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

Members were given the opportunity to ask questions and the following points were noted during the discussions:

•     the extension of the IFRS9 statutory override, which allowed councils to override fair value movements on pooled investments (such as the Council’s Property Fund investments), was due to cease in March 2025.  Members recommended and agreed that officers explore the possibility of setting aside Earmarked Reserves to support any losses that may be realised in the future, should the Council be in the position to have to withdraw from the fund;

•     Members raised concerns that accrued interest from the loan to the Rother DC Housing Company (estimated to be approximately £200k for the year) had been included as revenue rather than converted to capital, as the Company was not generating any income; and

•     Members wished to congratulate the Interim Deputy Chief Executive and the Interim Chief Finance Officer on their use of the Council’s funds to generate income, which would assist with preserving services. 

RESOLVED: That:

1)   the report be noted; and

2)   officers explore the possibility of setting aside Earmarked Reserves to support any losses that may be realised in the future, should the Council be in the position to have to withdraw from the Property Fund.