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 the 2022/23 outturn figures were draft and also subject to audit, although no material changes were anticipated at that point in time.

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

•     As at 31 March 2023, the Council’s total investments were approximately £20.6m, with investments of £12.6m in Call accounts and £8m in pooled 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 £1.006m in 2022/23 which was higher than predicted, partly due to incremental Bank of England interest rates increases and partly as a result of accrued interest on the loan instalments to the Rother District Council Housing Company Ltd and Property Funds, which yielded returns of between 3.24% and 4.04%. The investment portfolio and Property Fund values were detailed in Appendix A to the report.

•     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 (CP) delivery in 2022/23 accelerated compared to 2021/22, although not to the extent that was originally forecast so the CFR only increased by £17.6m against a budget of £74.8m. Members noted that the CP continued to be reviewed for affordability as part of ongoing monitoring.

•     The value of outstanding loans as at 31 March 2023 was £32.0m.  This was £11.2m 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 was predicted to be 0.25% for the year, which was 11.13% lower than the original budget due to the 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 5.01% return on investment and PIS assets a 6.68% return. The additional PIS rent income was due to the purchase of Buckhurst Place, the lease for which was agreed after Council had approved its budget.  Appendix D to the report gave more detail on those properties purchased as part of the PIS.  Investment in properties that yielded income for the Council was still considered a prudent way of increasing income, despite the volatility in the property market at the current time.  Should the Government remove the IRS9 override in the future, it would be prudent to establish a Treasury Management Volatility reserve to smooth out fluctuations in paper losses.    

•     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.

•     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 investment activity conformed to the approved strategy, and the Council had no liquidity difficulties.  It was noted that future budgeting reports would be more transparent and provide a clearer and easier format for Members to see and understand in the future. 

RESOLVED: That the report be noted.