Treasury Management Strategy 2023/24

Introduction

This report sets out views on a strategy to be followed for the financial year 2023/24 for the South Tyneside Consolidated Loans Fund (CLF).

The suggested strategy for 2023/24 is based upon Officers’ views on interest rates. These have been derived from forecasts prepared by Link Asset Services, the Council’s Treasury Adviser and Capital Economics, an independent forecasting company.

Adoption of the 2021 CIPFA Code of Practice on Treasury Management

The Council adopted the 2017 version of the CIPFA Code at its Council meeting in February 2019. CIPFA issued an amended code at the end of December 2021, with the expectation that it will be adopted for the 2023/24 financial year. The Council is recommended to adopt the amended and updated code.

One Strategy for the Whole Council

The Code includes the requirements of the Housing Self Financing Regime. There is no requirement for individual strategies for the General Fund and the Housing Revenue Account. Therefore, the Council has adopted a one strategy approach.

CIPFA Prudential Code for Capital Finance in Local Authorities

The key objectives of the Prudential Code are to ensure, within a clear framework, that capital investment plans of local authorities are affordable, prudent and sustainable and that Treasury Management decisions are taken in accordance with good professional practice.

6. The current system of capital finance allows the Council to have a significant degree of flexibility and freedom over its borrowing. However, it does not provide additional Central Government support for the cost of borrowing. Consequently, the cost of additional capital expenditure has to be met from revenue and has to be affordable and sustainable in the long term. Therefore, it is necessary to develop the capital and revenue budgets and the Treasury Management Strategy together to ensure that the requirements of the Prudential Code are met.

Delegated Authority

The Council delegates responsibility for the implementation and regular monitoring of its Treasury Management policies and practices to Cabinet, and for the execution and administration of Treasury Management decisions to the Chief Financial Officer, a role that is undertaken within the Council by the Director of Business and Resources. The Head of Pensions assists the Director with this role.

CIPFA Prudential Indicators

It is a statutory duty under Section 3 of the Local Government Act 2003 and supporting regulations for the Council to determine and keep under review how much it can afford to borrow.

Within this framework, prudential indicators are required to assess the affordability of the capital investment plans. These provide an indication of the impact of the capital investment plans on the Council’s overall finances.

The Treasury Management Code and the Prudential Code require the Council to set indicators that are used to devise the Treasury Management Strategy. Ongoing monitoring against the indicators takes place and is reported quarterly to Cabinet. These indicators for 2023/24 and the following two years are shown below, along with the updated forecast of the position for 2022/23.

Gross debt and the Capital Financing Requirement

In order to ensure that over the medium-term, debt will only be for a capital purpose, the Council should ensure that debt does not, except in the short term, exceed the total of capital financing requirement in the preceding year plus the estimates of any additional capital financing requirement for the current year and the next two financial years. This allows some flexibility for early borrowing for future years but ensures that borrowing is not undertaken for revenue purposes. This is a key indicator of prudence.

The Chief Finance Officer confirms that the Council complies with this prudential indicator in the current year and future years. This view takes into account current commitments, existing plans, and the proposals in the budget report.

The Actual External Debt is the expected capital financing requirement at the end of each year plus other long term liabilities. It is only comparable to the Authorised Limit and Operational Boundary at that date.

Operational Boundary for External Debt

14. The Operational Boundary is based on the Council’s plans for capital expenditure and financing. This is based on the most likely and prudent estimates for borrowing but not the worst case scenario.

It is not necessary to report the occasional temporary breach of the Operational Boundary due to variations in cash flow. However, a sustained or regular trend above the Boundary would be of significance and would be reported to Council.

Authorised Limit for External Debt

This is the maximum amount of external debt that the Council is expected to have and includes headroom above the operational boundary for any unusual cash movements.

If it appears that the limit is likely to be breached, there will be a report to Council outlining the reasons for this. It will then be up to Council to determine whether corrective action should be taken to ensure that the limit is not breached or alternatively whether the limit should be raised.

Liability Benchmark

This is a new treasury indicator implemented as instructed in the revised 2021 version of the CIPFA Code of Practice on Treasury Management. The Council is required to produce a Liability Benchmark for the forthcoming financial year and the following two financial years, as a minimum. The actual external debt is then compared against this benchmark.

Further details on the calculation of the liability benchmark are shown in Appendix E.

The table shows that in the current year and forecast for 2023/24 the level of external debt is higher than the benchmark. Thereafter, the level of external debt falls below the benchmark.

Fixed and Variable Rate Exposure Limits

These limits provide a framework for managing the Council’s exposure to fixed and variable interest rates.

Maturity Structure of Borrowing

This establishes parameters that control the percentage of debt needing to be replaced at any time.

Investments for periods Longer than 365 days

The Council can invest for longer than 365 days. The maximum amount to be invested for periods above 365 days will be limited to £10m. This limit has been set following a review of the Council’s reserves and other cash balances, and after taking account of cash flow requirements and future spending plans as set out in the Medium Term Financial Plan (MTFP).

The limit has to be viewed alongside the Council’s appetite for risk, given the economic environment and the credit worthiness of counterparties at any point in time. At the time of writing, the Council can only lend to local authorities for periods over one year.

Current Treasury Position

At the time of writing the Consolidated Loans Fund (CLF) is £62.2m underfinanced. If no further borrowing is arranged for the remainder of the financial year this would leave the CLF at £72.0m underfinanced. This is above the £60.0m target adopted for the 2022/23 strategy, however, this was a deliberate evolution of the strategy due to market conditions. Evolving the strategy to adapt to market conditions is entirely appropriate and is allowed for in the annual strategy agreed by Council. It has proved financially beneficial, to adopt this underfinancing position which in effect uses a proportion of the Council’s cash balances for internal borrowing.

The forecast structure of the CLF at the year-end is:

The under-financing position is covered by internal borrowing from the Council’s cash balances. This reduces the amount of cash invested through the money markets.

Borrowing Requirement

The table below sets out a basic position for the future borrowing requirement, based on forecasts in the Council’s budget and the current maturity structure of the CLF. This may change as restructuring opportunities are taken.

Minimum Revenue Provision Policy Statement

The Council is required to pay off an element of the accumulated General Fund capital spend each year (the CFR) through a revenue charge, the Minimum Revenue Provision (MRP). The policy on the MRP can be found in the MTFP.

Sources of Finance

Interest rates and expenses charged by the Public Works Loans Board (PWLB) are traditionally lower than those charged on market loans and therefore, the Council’s financing is predominately raised from the PWLB.

In 2012, the PWLB introduced the “Certainty Rate”. This allows councils which annually submit their capital spending plans for the new financial year and the following two years to the Department of Levelling Up, Housing and Communities, (DLUHC) to have interest rates payable on new PWLB loans reduced by 0.2%. South Tyneside Council has complied with this requirement. Therefore, the margin applied to loans to South Tyneside is actually 0.8% not the standard 1.0%.

At present, less than 2% of the Council’s debt has been borrowed from the money market. This source of borrowing largely dried up as a result of the financial crisis in 2008, although some lenders have since returned to the market. The Council can therefore borrow from the market if appropriate. The use of money market debt will be limited to 40% of the debt portfolio. This limit will apply at the time the borrowing is arranged.

The Council will also consider borrowing from other sources where appropriate. This could include the Municipal Bond Agency and the UK Infrastructure Bank (UKIB), which is a government-owned policy bank, focused on increasing infrastructure investment across the United Kingdom. The Bank helps to finance important projects in every region and nation of the UK in sectors including clean energy, transport, digital, water and waste.

Economic Background and Prospects for Interest Rates

The economy has generally struggled over the last couple of years, initially, on the back of the Covid-19 pandemic. In early 2022, there were some signs of an economic recovery, however, the Russian invasion of Ukraine added further economic uncertainty. In particular, the impact on energy supplies led to significant commodity price rises which has been a key factor in the high inflation figures and the rising cost of living.

In the current environment the Bank of England predicts a gradual fall in Gross Domestic Product (GDP) over the next 2 years, before it starts to rise again.

The most recent Bank of England inflation report had CPI inflation at 10.7% which is significantly above the Bank of England target of 2%. The rate of inflation has increased considerably throughout 2022, peaking at 11.1%. It is expected to fall slowly during 2023 and 2024.

Interest rate forecasts from a range of financial institutions are monitored. These forecasts are combined into a broad view on rates upon which the Treasury Management Strategy is based. These forecasts are set out in Appendix A. These have been provided by Link Asset Services (the Council’s Treasury Management adviser) and Capital Economics (an independent forecasting consultancy).

At the time of writing, the Bank Base Rate is 3.50%. This is the highest level since November 2008. It is expected to peak at around 4.50% in 2023/24.

Both Link and Capital Economics are forecasting further increases to the Bank Rate in 2023/24, however, the pace of increase differs between the two. Capital Economics is forecasting the Bank Rate will be at 4.50% by March 2023 and will stay at that level until March 2024. Whereas Link believe it will be at 4.25% by March 2023 and will not reach 4.50% until June 2023, where it will stay until March 2024.

Borrowing interest rates rose significantly in 2022/23, during a period of financial uncertainty, with 50 year PWLB borrowing hitting 5.51% in September 2022. At the time of writing PWLB 50 year borrowing is at 4.33%.

For borrowing, Link Asset Services forecast that PWLB rates will remain broadly the same until mid-2023. Thereafter, they are expected to steadily reduce. The forecast for 50 year PWLB rates is that they will be 4.10% by the end of 2023 and 3.60% by the end of 2024. Capital Economics is forecasting that rates will fall from current levels by mid-2023. The PWLB 50 year rate is forecast to be 4.00% by June 2023 and then to drift further downwards and to reach 3.60% by the end of September 2024.

It should be noted that rates are expected to be volatile and unpredictable, due to risks and concerns within the financial markets.

The PWLB forecasts from Link Asset Services for the year ended 31st March 2024 show:

• Five year borrowing rates at 3.90%
• Ten year borrowing rates at 4.00%
• Twenty five year borrowing rates at 4.20%
• Fifty year borrowing rates at 3.90%

CLF Borrowing Strategy - Options

Borrowing rates are expected to fall gradually in 2023/24, albeit slowly; there may be some advantage in timing borrowing later in the year, which will affect the amount of interest charged.

Forecasts suggest that short term and variable rate borrowing are likely to be similar to longer term borrowing during 2023/24. At these current levels there is no material advantage of borrowing for shorter periods of time. It should also be noted that short and variable rate borrowing does carry the risk of having to re-finance the borrowing at a time when rates may have increased. Therefore, any borrowing is likely to be for longer periods.

Gross and Net Borrowing Position

The Prudential Code requires the Council to explain its policy on gross and net borrowing.

The gross borrowing position is the actual level of external borrowing, whilst the net borrowing position is the gross borrowing position less the Council’s investment balances. This level of borrowing is more than offset by the assets owned by the Council, which are valued in excess of £1.2 billion.

The table below shows the forecast gross and net borrowing position for the next three years. It has been assumed that the gross borrowing position is the same as the capital financing requirement for borrowing at the end of each year. The Council’s cash balance is the amount assumed in the budget for calculating investment income.

The table shows that the gross external borrowing position is expected to marginally increase in the next two financial years from 2023/24 to 2024/25 and then remain the same in 2025/26. The net debt position follows the same pattern, as the cash balances are assumed to be constant for the three years going forward.

A breakdown of the Council’s cash balances is shown in the Investment Strategy.

External and Internal Borrowing

Before any decisions are taken on external borrowing from either the PWLB or the money markets, a view will be taken on whether the Council should internally borrow from its own cash balances.

As of 31st December 2022, the Council had used £62.2m of its balances to temporarily finance capital expenditure. The use of Council balances is expected to rise by the year end to £72.0m, provided that no further borrowing is undertaken. This approach has been attractive as the investment rates for cash balances have been significantly below the levels of interest rates payable on long term fixed rate debt. Therefore, it has been financially beneficial to use a proportion of the Council’s cash balances for internal borrowing.

Whilst this strategy may be beneficial in the short term, it should be weighed against the potential for incurring extra costs in the long term from delaying external borrowing until later years, when PWLB long term rates are forecast to be higher.

At the time of writing, investment rates have improved somewhat and are expected to continue that trend with further Bank Rate increases. Investing in 2023/24, is likely to be conducted, first, in a rising interest rate environment, but also potentially in a falling interest rate environment at the back end of the year, depending on how quickly inflation falls back from the current levels and how the economy performs.

If borrowing rates were to fall as forecast, and investment rates remain higher it may prove beneficial in 2023/24 to finance capital expenditure through external borrowing and reduce the Council’s temporarily underfinancing position.

Pool Rates and Estimates

The Council’s budget includes an estimate of the interest payments to be made on the debt portfolio.

The Council will adopt a borrowing strategy for the General Fund and the Housing Revenue Account that is consistent with the MTFP.

The debt estimates forecasted for the next three years are:

CLF Borrowing Strategy to be adopted

The 2022/23 strategy was set based on the Council internally borrowing £60m of the Council’s borrowing requirement from its cash balances. It looks likely that the position at the end of 2022/23 will be above this strategic target. This strategy is prudent as medium and long term borrowing rates are expected to fall from their current levels once prevailing inflation concerns are addressed by tighter near-term monetary policy, with Bank Rate increases over the remainder of 2022 and the first half of 2023.

A strategic target of £60m to £80mof underfinancing will be set for 2023/24 but this may be either reduced or increased in response to interest rate movements. Whilst there are risks with adopting this strategy, the forecast structure of interest rates suggests that this strategy should produce lower costs to the Council in the short term. This internal borrowing position is expected to remain at £60m to £80m for the next few years. The budget has been based on this strategy.

As the Housing Revenue Account maintains relatively low cash balances, the Council will maintain a policy of keeping the Housing Revenue Account fully financed at the year-end, or in line with the business plan during the year.

Based on current interest rate forecasts, new borrowing is likely to be focussed on longer term fixed rates, although rates across all maturities will continue to be monitored. As rates are expected to fall slowly throughout the year there may be some advantage in borrowing later in the year. The exact timing of borrowing decisions will depend on short term fluctuations of interest rates.

Opportunities to borrow from the money market and other sources of finance will be considered.

The Head of Pensions and the Director of Business and Resources will monitor movements in interest rates and the borrowing requirement and will adopt a pragmatic approach to meeting changing circumstances. All actions will be reported retrospectively to Cabinet.

Sensitivity of the Forecast and Possible Strategy Response

The Officers and the Treasury Adviser will monitor interest rates and forecasts and may adopt the following responses to a change in sentiment:

• If it was felt that there was a significant risk of a sharp rise in long and short term rates, perhaps arising from a greater than expected increase in world economic activity, then the position would be re-appraised. The likely response is that fixed rate finance would be raised before interest rates increased. If this occurred, the internal borrowing position may be reduced.
• If it was felt that there was a significant risk of a sharp fall in long and short term rates, perhaps due to economic growth weakening more than is currently forecast, then long term borrowing would be deferred. Rescheduling of existing fixed rate borrowings into variable or short-term fixed rate borrowings might take place.

Borrowing in Advance of Need

The Council will not borrow more than, or in advance of its need, purely in order to profit from the investment of the extra sums borrowed. Any decision to borrow in advance will be considered carefully to ensure value for money can be demonstrated and that the Council can ensure the security of such funds.

In determining whether borrowing will be undertaken in advance of need, the Council will:

• Ensure that there is a clear link between the capital programme and maturity profile of the existing debt portfolio which supports the need to take funding in advance of need.
• Ensure the ongoing revenue liabilities created and the implications for the future plans and budgets have been considered.
• Evaluate the economic and market factors that might influence the manner and timing of any decision to borrow.

Debt Rescheduling

The introduction in November 2007 of different PWLB rates for new borrowing and repayment of debt has meant that debt restructuring opportunities are now very limited.

Prior to these changes, the Council had made interest savings through restructuring PWLB debt. The changes have made it significantly more difficult to generate such savings.

For several years the rescheduling of borrowing in the debt portfolio has not occurred due to a large difference between premature redemption rates and new borrowing rates. With high levels of volatility in the markets at present, this situation may change and the position will be monitored.

Opportunities to make savings from switching long term debt to short term may occur. The potential for making short term savings needs to be considered against the risk of having to re-finance short term borrowings when they mature.

All rescheduling activity will be reported retrospectively to Cabinet.

Introduction

The Council will have regard to the Department of Levelling Up, Housing and Communities (DLUHC) Guidance on Local Government Investments (“the Guidance”) and the Chartered Institute of Public Finance and Accountancy (CIPFA) Code of Practice on Treasury Management and Cross Sectoral Guidance Notes.

The guidance from DLUHC on Local Government Investments makes the Annual Investment Strategy central to the framework in which the investment activity takes place. As part of this Strategy, the Council has to determine which investment products may be used during the year and classify these under the headings of Specified Investments and Non–Specified Investments.

When investing the cash balances, the prime objectives are the security of the capital sum and the liquidity of investments. The risk appetite of the Council is low, in order to give priority to the security of its investments. The Council will aim to achieve the optimal return on its investments that is commensurate with the achievement of these objectives.

The borrowing of monies specifically to invest or to on-lend to make a return is unlawful and the Council will not engage in such activity.

The Investment Office of the Pensions Service is responsible for managing the cash balances of the Council.

This report sets out views on the Investment Strategy to be adopted for the Council in 2023/24.

Non-Financial Investments and Loans to Third Parties

The DLUHC and CIPFA have extended the definition of ‘investments’ to include both financial and non-financial investments. The revised Treasury Management Code requires all investments and investment income to be attributed to one of the following three purposes:

Treasury Management

Arising from the Council’s cash flows or treasury risk management activity, this type of investment represents balances which are only held until the cash is required for use. Treasury investments may also arise from other treasury risk management activity which seeks to prudently manage the risks, costs or income relating to existing or forecast debt or treasury investments.

Service delivery

Investments held primarily and directly for the delivery of public services including housing, regeneration and local infrastructure. Returns on this category of investment which are funded by borrowing are permitted only in cases where the income is “either related to the financial viability of the project in question or otherwise incidental to the primary purpose”.

Commercial return

Investments held primarily for financial return with no Treasury Management or direct service provision purpose. Risks on such investments should be proportionate to an authority’s financial capacity – i.e., that ‘plausible losses’ could be absorbed in budgets or reserves without unmanageable detriment to local services. An authority must not borrow to invest primarily for financial return.

This report deals solely with treasury (financial) investments, which are regarded as part of the ‘core’ Treasury Management activity, i.e. the investment of surplus cash flow balances.

Non-financial investments (those that fit into the Service Delivery and Commercial Return categories) including loans to thirds parties cannot be considered by following the same rules on security and liquidity as would normally occur for a financial investment as generally the expenditure incurred is in support of service objectives and funded from capital resources. Before any non-financial investment or third party loan is made the Council will undertake due diligence and seek further advice to ensure the investment is appropriate.

The Council’s policy on non-financial investments and loans to third parties is covered within the Capital and Investment Strategy which is reported to Council along with the Treasury Management Strategy and the Medium Term Financial Plan.

Specified Investments

Specified Investments are those that are considered to offer the highest levels of security and liquidity. All such investments in this category must be denominated in Sterling and with a maturity of no more than one year. They include investments with the UK Government, local authorities and with bodies or schemes that meet the Council’s high creditworthiness criteria.

Appendix B details the investments that fall into this category and which the Council may make use of in 2023/24.

Non-Specified Investments

These are investments that do not fall into the category of a Specified Investment. The maximum amount of the Council’s investment portfolio that will be invested in Non-Specified Investments at any one time is £10m. This will allow the Council to lend out a proportion of its cash balances for periods of over 365 days, should it be appropriate to do so.

Appendix C lists the investments in this category that the Council may use in 2023/24.

Investment Counterparty List and Credit Criteria

The Head of Pensions and the Director of Business and Resources have delegated authority to set and revise criteria for compiling the list of counterparties that the Council lends money to and to set individual limits within the criteria.

The Council uses the creditworthiness service provided by Link Asset Services, its Treasury Adviser. This service has been enhanced in recent years and now uses a modelling approach with credit ratings from the three main rating agencies (Fitch, Moody’s and Standard and Poor’s) forming the core element. However, it does not rely solely on credit ratings but combines these with credit watches, credit outlooks and credit default swap spreads into a weighted scoring system. The end product is a series of colour coded bands that indicate the relative creditworthiness of counterparties. These colour codes are also used by the Council to determine the period for investment.

The Council is satisfied that this service gives a much improved level of assurance of security for its investments.

The Council will not use the approach suggested by CIPFA of using the lowest rating from all three rating agencies to determine creditworthiness as there has been a tendency at any one time for one of the agencies to be much more aggressive in giving low ratings. This could, therefore, be unworkable and leave the Council with an even more limited lending list. The Link Asset Services creditworthiness service uses ratings from all three agencies, but in a scoring system which does not give an undue weighting to just one agency.

Sole reliance will not be placed on the use of the Link Asset Services creditworthiness service. In addition, the Council will form its own views on creditworthiness and risk by using market data, information on government support for banks and the likelihood of government support. Where the Council’s approach differs from that of Link Asset Services creditworthiness service, it is usually due to the placing of additional constraints on lending to organisations.

At present, the Council will only make fixed term deposits with UK banks, other local authorities, UK government organisations and selected overseas financial institutions that are domiciled in a country with a AAA credit rating. This position is kept under review.

Potential revisions to the Council’s approach to setting credit ratings are monitored and changes to the counterparty list or the criteria are reported retrospectively to Cabinet, as are breaches of the limits.

The maximum maturity periods and amounts which can be invested with counterparties is outlined in Appendix D.

The Council will only lend to organisations which it believes have a high level of creditworthiness. This is defined as meeting Link Asset Service’s creditworthiness criteria, combined with the Council’s in-house views.

Investments Balances

At the time of writing, the Council had £63.43m cash invested in the money markets. In addition, it had £62.17m internally invested in the Council’s CLF, which gives a total investment balance of £125.60m. A breakdown of these amounts is shown below:

The Council’s £125.60m balance relates to the following three elements:

• The first element is comprised of reserves, provisions and capital receipts that are held for a specific purpose such as school balances, liabilities or to partly finance the Council’s capital programme.
• The second element is cash flow. This is comprised of balances not yet used for the capital programme, monies received in advance and cash held to cover the Council’s regular cash flow requirements such as payroll, housing benefit and supplier payments. These monies are not available to increase the budget available to the Council.
• The third element is the internal investment of balances in the Council’s CLF, which is generally referred to as the underfinancing position.

The balances invested in the money markets are managed in-house by the Investment Office of the Pensions Service. Investment is achieved primarily by placing money with approved institutions for fixed periods, in accordance with the Council’s counterparty list.

Liquidity

As noted above, liquidity is one of the prime objectives when investing surplus balances. This is to ensure that the cash flow requirements of the Council can be met on a daily basis.

As most of the Council’s investments will be term deposits, liquidity will be maintained by having a minimum of 40% of its investment portfolio maturing within three months. This limit can only be applied at the time the investment decision is made.

The Council can legally invest for longer than 365 days. The maximum amount to be invested for periods above 365 days has been set following a review of the Council’s reserves and other cash balances, and after taking account of cash flow requirements and future spending plans as set out in the MTFP. For 2023/24 the limit is set to £10m.

This limit is based on a prudent view of the level of balances the Council could lend out for these periods and still maintain suitable liquidity. This limit has to be viewed alongside the Council’s appetite for risk, given the economic environment and the creditworthiness of counterparties at any point in time. At the time of writing, the Council can only lend to local authorities for periods over one year.

Investment Strategy

When determining the investment strategy, a view on short term interest rates is taken. Lending is then undertaken in accordance with a strategy derived from that view, subject to cash flow requirements.

The forecast income from investments is taken into account when the strategy is being devised. For 2023/24, it is assumed that 3.50% will be earned on an average cash balance invested in the money markets of £50m. This is the estimated cash position after allowing for the internal investment of cash balances as set out in the borrowing strategy.

A range of interest rate forecasts is shown in Appendix A. At the time of writing, the Bank Base Rate is 3.50%. Both Link and Capital Economics are forecasting the Bank Rate to rise to 4.50%, albeit at different times, before falling in 2024.

At the time of writing, the Council had 65% of its investment portfolio lent out for a period of up to three months to meet cash flow requirements. The remaining 35% are longer term deposits which will mature during 2023/24.

The strategy for next year will be to invest over a range of periods ensuring sufficient funds are available to meet everyday cash flow needs as it is expected that the Council’s cash flow position will be like that experienced in 2022/23.

Interest earned on Housing Revenue Account balances will be allocated using the Council’s average annual lending rate.

The view on rates and the investment strategy are continually reviewed and, if necessary, revised in the light of current and forecast market conditions.

Delegated Authority

The Council delegates responsibility for the implementation and regular monitoring of its Treasury Management Policies and Practices to Cabinet, and for the execution and administration of Treasury Management decisions to the Chief Financial Officer, a role that is undertaken within the Council by the Director of Business and Resources. The Head of Pensions assists the Director of Business and Resources with this role.

The Council has nominated the Overview and Scrutiny Co-ordinating and Call-In Committee to be responsible for ensuring effective scrutiny of the Treasury Management Strategy and policies.

Policy on use of external service providers

The Council uses Link Asset Services, Treasury Solutions as its external Treasury Management adviser. Link Asset Services is authorised and regulated by the Financial Conduct Authority for the provision of the investment advisory service it provides as part of its Treasury Management service.

The Council recognises that responsibility for Treasury Management decisions remains with it at all times and will ensure that undue reliance is not placed upon the external service providers.

The tables below set out forecasts from Link Asset Services (the Council’s Treasury Adviser) and Capital Economics (an independent forecasting consultancy). The forecast within this strategy statement has been drawn from these diverse sources and from Officers’ own views.

Please note that the forecasts shown below and throughout the report have taken into account the 20 basis point (0.2%) certainty rate reduction effective as of the 1st November 2012.

The investments listed in the table below are all Sterling denominated investments which are repayable/redeemable within twelve months and which can be used by the in house investment team.

The investments listed in the table below are all Sterling denominated investments which can be used by the in house investment team. These investments are considered to carry additional risk, either because the term of investment is in excess of one year or because of the structure of the product. The reasons for using them and the risks associated with them are detailed below. These investments are classified as Non Specified Investments.

The calculation of the liability benchmark is shown in the table below using the following figures:

• External debt outstanding at the year-end assuming no further borrowing is taken, and maturing debt is not replaced.
• Opening loan debt at the start of 2022/23.
• Investments at the start of 2022/23 which are assumed to remain constant over the period.
• New borrowing requirement - general fund which is the planned prudential borrowing less any expected capital receipts in each year.
• Minimum Revenue Provision (MRP) which is the amount set aside for the repayment of the external debt.
• Forecast net loans at the end of each year shows the opening loan debt less investments and adjusts for the new borrowing and MRP applied in each year.
• Liquidity buffer of £25.0m has been agreed as the minimum level of cash required to meet the Council’s liquidity needs.
• Benchmark is the net loans plus the liquidity buffer which is a theoretical calculation of what the external debt should be each year.

1. The table shows that in the current year and in 2023/24 the Council has external debt higher than the benchmark, which is a result of borrowing taken in 2021/22 at historically low interest rates. These low rates will give more certainty to the Council’s borrowing costs in the coming years.
2. External debt remains below the capital financing requirement as explained above which is the prudent total level of debt for the Council.
3. In 2024/25 and 2025/26 the levels of external debt are £3.6m below the benchmark. This is not considered to be a material issue as long as this figure remains below the liquidity buffer of £25.0m. As the figures used for this indicator are estimates, small variations from the benchmark will be addressed as part of Treasury Management activity in future years.
4. Overall, the table shows that no additional borrowing will be required above that shown in the table. This suggests the level and maturity profile of the Council’s external debt is appropriate and there are no issues of concern with this indicator.
5. This profile is typical for many Local Authorities and is in line with expectations of both officers and the Treasury Management Advisers. The table reflects the current approved capital programme expenditure for the next five years but does not include anything beyond that. The Council will make new capital expenditure decisions in the years ahead which will increase the liability benchmark in the future. The long term nature of the Council’s existing PWLB debt and its maturity profile means that overall debt levels should remain stable in the long term.