The report of the Deputy Chief Executive and City Treasurer is enclosed.

The Committee received the report of the Deputy Chief Executive and City Treasurer which set out Treasury Management activities of the Council during the first six months of 2023/24.

A challenging financial market with increasing interest rates was described. The Council had taken on additional debt during that period to fund the Capital Programme seeking loans of short to medium term length to limit the long-term impact of higher interest rates, in light of market expectations that rates would fall back. A further borrowing requirement was anticipated in the latter half of the year. The borrowing position reflected the Council’s strong balance sheet which enabled net interest costs to be minimised and reduced credit risk by making temporary use of internal borrowing (reserves, provisions, positive cash flows, etc). The Council’s policy remained to keep cash as low as possible and not to borrow in advance of need for capital purposes. However, the report asserted that a strong balance sheet position is not without risk, and with interest rates set to remain at current levels or increase in the future, the timing and structure of future debt financing would be important in sustaining this position. Higher rates would also act as a constraint on future borrowing, and therefore capital financing capacity, would require due consideration as part of the Council’s Capital Strategy. Proactive treasury management during the year had sought to minimise borrowing costs for the Council and maximise returns on investment. The Treasury team would therefore continue to evaluate financial markets to look for opportunities and risks within the context of the agreed Treasury Management Strategy.

The Deputy Chief Executive and City Treasurer reiterated the challenging environment the Council was operating within with regard to interest rates and the need to borrow to fund the Capital Programme resulting in borrowing being relatively high in comparison with other Local Authorities. A new section in the report had therefore been included which discussed the role of the newly constituted Office for Local Government (OfLOG) who would be scrutinising levels of borrowing and other council activities as part of their Early Warnings work. She gave assurance that funding for the programme was affordable and that provision had been made including within the capital financing reserves to ensure that costs would be met. The Capital Strategy itself would be considered by the Resources and Governance Scrutiny Committee as part of the budget process and would contain more detail on this. The cost of carry for any cash balances remained challenging.

The Commercial Finance Lead responded to questions about temporary borrowing arrangements, including financial returns and measures to ensure that the Council was operating within the financing capacity available to it. The Deputy Chief Executive and City Treasurer asked the Committee to note that the Council’s ability to borrow for future capital projects was far more constrained than in the past and that the upcoming Capital Strategy report to be considered as part of budget arrangements would restate the principles around where the Council would or would not borrow.

Decision

To note the report.