Agenda item

In line with the Chartered Institute of Public Finance and Accountancy’s (CIPFA) Code of Practice for Treasury Management and the Council’s Financial Regulations, the Council was required to provide the Audit and Governance Committee with a mid-year report on the treasury management activity for the first six months of the financial year.

The Code of Practice defines Treasury Management as: The management of the organisation’s investments and cash flows, its banking, money market and capital market transactions; the effective control of the risks associated with those activities; and the pursuit of optimum performance consistent with those risks.

The Committee received a report on the current year’s treasury management activity for the first six months of the financial year.  This included a summary of the Council’s borrowings and on the treasury cash (investments) position.

In the current economic climate it was considered appropriate to keep investments short term to cover cash flow needs.  Liquid cash was diversified over several counterparties and Money Market Funds to manage both credit and liquidity risks. It was now impossible to earn the level of interest rates commonly seen in previous decades as all short term money market investment rates have only risen weakly since the Bank Rate had been cut to 0.10% in March 2020.  Given this environment and the fact that Bank Rate might only rise marginally by mid-2022, investment returns were expected to remain low.

The Council continued to pursue a strategy of keeping borrowing and investments below their underlying levels, sometimes known as internal borrowing, in order to reduce risk.  The Council would continue the strategy of internal borrowing while it made sense to do so.  There continued to be a shortage of counterparties available in the inter-local authority market, although the Council had been able to place several deals of six months duration earning a marginal premium for locking out the maturity date.  Over the next few months the Council would continue to seek these opportunities achieving a marginal premium as the market prices in the anticipated interest rate increase.

In overall budget terms, the Council was forecast to be £1.000m net better off during the year, despite an underachievement of £0.426m on treasury investment returns due in part to low rates of interest available and a need to invest surplus cash short term to help manage cashflow risk during the pandemic.  Another factor, however, was the continuation of the Council’s strategy to use surplus cash instead of borrowing, keeping external financing costs low.

Following a competitive tendering process, Link Treasury Services Limited (Link) had been appointed as the Council’s treasury advisor with effect from 1 August 2021. Link had provided a training session for members of the Audit & Governance Committee in September and were currently reviewing the Council’s treasury management strategy, including investment counterparties and borrowing requirements.

Member sought additional information and were informed that interest rate swaps were not currently part of the Council’s Strategy nor used by the Council, although it might be possible to include it for future years.  Before doing so, it would be advisable to discuss any possible risks and implications with the Council’s treasury advisor.

It was clarified that the value-weighted average credit rating of the investment portfolio meant that the Council had a below average exposure to credit risk.

RESOLVED –

That the Treasury Management mid-year report for 2021/22 be noted.