Report of the Deputy Chief Executive and City Treasurer

This report informs Members of the Council’s capital financing position, forecast borrowing, and the impact on the Council’s balance sheet and revenue budget. The report also reviews the changes to PWLB borrowing rates announced in October.

The Committee considered a report of the Deputy Chief Executive and City Treasurer, which informed Members of the Council’s capital financing position, forecast borrowing, and the impact on the Council’s balance sheet and revenue budget. The report also reviewed the changes to Public Works Loan Board (PWLB) borrowing rates announced in October 2019.

The main points and themes within the report included:-

·                The context of the Council’s approach to managing its debt, which had been to minimise cash balances by delaying taking external debt;

·                Changes in internal borrowing to create revenue savings compared to the cost of externalising the debt and holding cash;

·                Interest rate expectations over the next three years;

·                An overview of the Council’s borrowing strategy, which was based on aggregating the debt needs of the Council to achieve the optimum risk balance in debt management;

·                The forecast borrowing requirements  from 2019/20 to 2023/24;

·                Revenue implications of new debt for the medium term; and

·                The impact and potential future implications to the Council in relation to the PWLB rate policy change.

Some of the key points that arose from the Committees discussions were:-

·                Rather than increase the PWLB rate, could Government not have tightened the rules up in regards to public sector borrowing;

·                As the PWLB rate had historically been low, had the Council and other local authorities simply become accustomed to borrowing at a low rate of interest;

·                How was the Council lobbying Government to review the change in the PWLB rate;

·                Which regeneration schemes, where a return on investment was expected, were likely to be affected by the change in the PWLB policy;

·                What was the Council’s borrowing cost in terms of the potential impact on the revenue budget;

·                Had any potential equalities impact been taken in to consideration in connection to borrowing costs and the increased impact on the Council’s revenue budget, which was largely spent on groups with a protected characteristic; and

·                What were the benefits and potential drawbacks for potentially borrowing from the private sector in the future.

The Leader advised that the 1% increase of the PWLB borrowing rate was unlikely to stop local authorities investing in certain ventures, but more likely it would have an impact on more marginal schemes such as affordable housing taking place and  as such he felt this was a counterproductive measure.

The Deputy City Treasurer advised that the Council had become used to borrowing money at a low rate of interest, however, she provided an assurance that when the Council set its capital programme, it was set against the slightly higher PWLB rate towards the end of 2018, to ensure that the existing capital programme was predominantly budgeted for at that time, meaning that the programme remained affordable.  The consequence of the increase in the PWLB rate was the impact on the viability of any future schemes.

The Committee was also advised that in terms of lobby government, the City Treasure had contacted a number influential organisations, including a number of other Local Authorities and the LGA, to enable a concerted response to the proposed increase.  As well as this the City Treasurer had spoken to HM Treasury and the Department for Communities and Local Government to seek an explanation and the reasons for the increase.

The Leader advised that in terms of regeneration schemes likely to be affected, this would likely relate to any future schemes where the Council was required to invest. He also advised that in terms of borrowing costs, there were two elements that needed to be taken into account, the minimum revenue provision and interest.  The totality of this was that in any given year  the Council repaid approximately 4.5% of its total borrowing.  Due to the way the Council set the interest when it fixed its capital budget, it meant that the Council would likely need to increase its revenue provision in 2021/22. 

The Deputy City Treasurer reported that as part of the business cases for capital investment, a number of factors would be considered, including strategic fit, economic case, social value outputs and carbon implications and the impact on equalities would be built into part.  It was suggested that going forward this could be something that was looked at more explicitly in future business cases for investment proposals.

Furthermore, the Committee was advised that the Council had always borrowed from the PWLB due to the ease of which loan funding could be accessed and good interests rates.  At the present moment the Council was waiting to see how the other market participants responded to the PWLB increase in relation to how local authorities could access borrowing and associated restructure payments.

Decision

The Committee notes the report.