Agenda item

This report sets out the outturn for the Council’s Treasury Management Activities for 2023-24 updating members on both  borrowing and investment decisions in the context of prevailing economic conditions and the Council’s Treasury Management performance.

Amanda Healy (Deputy Director of Investment and Infrastructure, Brent Council) introduced the report, giving a brief outline of the Treasury management report before handing over to Nadeem Akhtar (Senior Finance Analyst, Brent Council) to outline the following key points:

·             CIPFA guidelines required the Council to submit the report for scrutiny at the Audit and Standards Advisory Committee prior to going to Cabinet for approval and Full Council.

·             The report outlined how the council complied with its prudential indicators for 2023-2024 as approved by Full Council in February 2024. This was detailed in Appendix 4, which included estimates for capital expenditure compared to capital financing requirements and loan balances against operational boundary limits for external debt.

·             External loan balances were noted to have sat at £814m on the 31^st of March, representing a 5% change from 1 April 2024 as a result of the council raising £130m pounds worth of new external loans and repaying £91m of maturing debt.

·             In relation to borrowing, the Council’s reasoning behind declining the proposed loan rate of 5.76% for a LOBO loan was detailed in section 3.5.12 of the report.

·             Loan rates had now moved in the market and the total Capital financing requirements had changed from £1.14b to £1.24b, equating to a £100m difference which represented the amount of borrowing undertaken to fund the capital programme at year end.

·             The Council’s average debt pool rate had moved from 3.49% in March 2023 to 3.89% in March 2024 due to changing interest rate environments in the UK.

The Chair then invited the Committee to raise questions on the report, with the responses summarised as follows:

·             Discussing the economic background of the report, the Committee wished to know how the report impacted the council's strategy over the next few years. Amanda Healy noted that she did not foresee any change to the strategy, which was broad and enabled the Council to react to different scenarios. Where the Council could foresee rates increasing, for example, there was flexibility and the Council could seek advice on the best route forward. The fall in inflation had not resulted in prices declining, so any future capital projects would need to deal with higher prices. Currently, the necessary income of cashflow to help repay borrowing was not catching up with inflation, making it challenging to fulfil the Capital Programme. CFR models showed that capital expenditure plans over the next three to five years had dropped due to increased costs and officers expected that there would be a general decrease in new demand for borrowing.

·             Regarding investment, the Committee noted the liquidity figure of £20m and asked if the ability to deposit in particular places and still get a high rate of return were utilised. Amanda Healy explained that legislation required a minimum balance of £10m at any point in time to be able to access any products on the market.  Officers explained that the investment portfolio generally used money market funds as the more common option and the Council did invest with central government using their Debt Management Account Deposit Facility.  Due to the current cash flow forecast and expected borrowing requirements there were no investments planned to last longer than 1 year, but the Council was looking at medium term options.

·             On the subject of borrowing, the Committee queried why capital financing was forecast to rise between now and 2027-28. Amanda Healy responded that this would be due to the Council continuing with the capital programme. For example, the capital programme housing scheme was partially funded by grants and the remainder would need to be financed by borrowing. The Council owned those properties for social housing, meaning the money brought in from rent was used to generate funds to cover management, maintenance and borrowing elements.

·             The Committee asked what the Council’s appetite for LOBO loans was. The Committee was advised that LOBOs were loans with option dates in which the Lender could propose a new rate, and the Council had the option to pay back the loan without penalty. There were risks with that type of loan if the borrower opted to increase interest rates. These arrangements were entered into a number of years ago and remained as liabilities on the balance sheet. The holding was managed carefully and was discussed regularly with treasury management advisors to look at opportunities for early repayments or restructuring of LOBOs to avoid any ongoing risk. The Council had not actively pursued any new opportunities for LOBOs and had been successful in converting some into fixed-term loans historically, so the current proportion was much lower than it had been in the past meaning the risk was not as great. In response to a query about the average rates of LOBOs the Council was holding, officers explained that the LOBO balance had a mix of loans with the average rate comparing to the PWLB portfolio. Officers advised they would provide further details regarding the LOBO balance and rate.

·             In relation to loans the Council was borrowing from other local authorities, the Committee asked what would happen if those local authorities issued a Section 114 notice.  Officers responded that issuing a 114 notice would not mean those authorities had no physical cash, but there was a risk to the Council and the Council would not look to place any further investments with that particular organisation. To manage and avoid this, the Council made an assessment of other authorities to scrutinise and assess risk for Councils Brent made transactions with.

·             Regarding financial constraints on temporary accommodation, the Committee noted that borrowing less would mean less spending on social housing, which would further increase the cost of temporary accommodation. Officers acknowledged the additional pressure this was applying to the ongoing temporary accommodation emergency and formed part of the lobbying the Council and members were doing. The Council was looking at levers and alternative mechanisms to enable housing delivery projects to come forward, including rent level reviews and level of subsidies to help bridge the gap reviewing the role of the Council’s subsidies.

·             Using the example of Housing schemes, the Committee asked whether the Council’s borrowing strategies took account of false economies. Officers advised that if the Council continued with a temporary accommodation housing scheme it would not provide enough cash to repay the debt, which would have an impact on the General Fund account meaning there would not be enough surplus to cover new debt repayments. This would also be the case if the Council delivered more secure forms of accommodation instead of temporary accommodation with a significant financial impact for the HRA on an annual basis. As such, the Council would be making a long-term commitment that could not be funded. The entire sector was exploring different avenues to bring these schemes forward, but some projects could not be continued.

·             The Committee noted that the current debt profile was weighted heavily in the 20-year-plus area, at around 50% of debts. Officers responded that these debt arrangements aligned with the type of projects the Council was investing in. A significant amount of assets comprised of council dwellings, where debt was more likely to be in the longer term. The capital financing requirement was used to model what debt maturity was needed and indicated what borrowing durations the Council could utilise while taking opportunities in the market.

·             In relation to Part A of Appendix 4 detailing capital expenditure and financing, the Committee asked if forecasting was done once a year. Officers noted that the capital programme budget was monitored monthly internally and reported quarterly to Cabinet where more up to date figures were included.

·             In relation to the Capital Expenditure Table in Appendix 4, the Committee queried why there was a substantial increase in expenditure over the next 2 years and then a sudden decrease from 2026 onwards in the forecast for Regeneration. Officers advised members that the capital programme was purely project-based so officers would not be expecting the same expenditure each year. The Wembley Housing Zone, which was now under construction, was driving the current costs in Regeneration and as it was a significant scheme that stood out. The Capital Programme was based on a 5-year rolling programme as capital projects often took time to ensure the necessary due diligence and compliance had been done, meaning the Council was often spending only a small proportion of a project’s budget until it could build or acquire. As such, the Regeneration forecast would see those peaks and troughs throughout the 5-year period

·             The Committee wished for clarification on the government’s ‘Invest to Save’ scheme and what options this offered. Officers noted that the government was aiming to facilitate Councils to use capital receipts to fund ‘invest to save’ projects going forward, such as for a specific project with immediate expenditure upfront. A capital receipt referred to money created from the proceeds of the disposal of council assets. Within Brent, capital receipts were focused around the South Kilburn regeneration project, and the Council generally did not have sufficient capital receipts to use them for different mechanisms. Other authorities used capital receipts to offset MRP charges but Brent did not have the receipts to do that, and it was important to find the right balance in using those receipts and ensure it was prudent. Minesh Patel added that the government was looking to introduce a mechanism that allowed Councils to turn capital receipts into a revenue budget to generate savings. For example, where Councils had a deficit or could not set a balanced budget then they could borrow money that was normally ringfenced for capital purposes to use as revenue. However, this would result in borrowing more money to fund everyday services that would still need to be paid back with no mechanism to do that.

As no further issues were raised the Chair thanked officers for the update provided and the Committee RESOLVED:

(1)        To note the outturn for the Council’s Treasury Management Activities for 2023-24 and the update to members on borrowing and investment decisions in the context of prevailing economic conditions and the Council’s Treasury Management performance.

(2)        To approve the submission of the report to Cabinet for approval in accordance with the Chartered Institute of Public Finance and Accountancy’s Treasury Management in the Public Services: Code of Practice.