Agenda item

This report presents the draft Treasury Management Strategy for 2025/26 for consideration by the Committee. The final version of the TMS incorporating the views of this Committee will be included in the annual Budget Setting Report to be presented to Cabinet and Full Council in February 2025.

The Chair welcomed Sam Masters (Head of Finance) and Nadeem Akhtar (Senior Finance Analyst) to the meeting who were then invited to present the draft Treasury Management Strategy (TMS) for 2025-26 for consideration by the Committee. It was noted that the final version of the TMS, including any comments made by the Committee, would be included in the annual budget report to be presented to Cabinet and Full Council in February 2025.

In considering the report key issues were highlighted as follows:

·             The strategy (attached as Appendix 1 to the report) was currently in draft format and would be finalised for inclusion in the annual budget setting report that would go to Cabinet and Council in February 2025.  At the request of the Chair, officers advised they would ensure non councillor members of the Committee were provided with a copy of the final Treasury Management Statement included within the Council’s 2025-26 Budget Report.

·             The Strategy set out the framework for the Council’s Treasury Management activity in 2025 - 26 and included an outline of the Council’s borrowing strategy and sources of debt finance (including the Liability Benchmark), investment strategy (including types and prescribed limits), Treasury Management Prudential Indicators for 2025 – 26 (which it was noted included security, liquidity, interest rate exposure, the maturity structure of borrowing and principle sums invested for periods of more than a year), alternative options and strategies along with an external and local context including the Capital Financing Requirement (CFR).  This included details (within Table 1 of the Strategy) of the Council's medium-term borrowing requirements based on budgetary forecasts, which for 2025-26 had been estimated at £360 million. 

·             The Strategy had been produced in compliance with the CIPFA Treasury Management Code of Practice & Prudential Code for Capital Finance.

The Chair thanked Nadeem Akhtar for their outline provided and then invited the Committee to raise any questions they might have, which are summarised below:

·             On the subject of interest rates, the Committee sought further details on the basis of the assessment from the Council’s Treasury Adviser regarding the level of Bank interest rate and reliability of the predicted rate at 3.75%.  In response officers advised this was based on a moving average for the year.  Whilst the current rate was 4.75% and the position was subject to regular fluctuation subsequent changes were anticipated moving forward based on the latest forecasts within the Bank of England Monetary Policy Report, which were subject to ongoing review and would be reflected within the final report.

·             Regarding investment limits, further clarification was sought on the limits identified under the alternative investment options within the strategy.  Given the financial pressures being experienced by the Council and revenue reserves available to cover investment losses were forecast at £513.3m. Members, whilst noting the 10% or £20m limit identified as a means of limiting risk to any default, queried the reference regarding lending to other organisations within the strategy.  In response, Amanda Healey (Deputy Director of Investment and Infrastructure) advised that this was related to the management of credit risk, which is what the investment limit was designed to achieve in order to avoid exposing the Council to too great a risk in the case of a single default.

·  Moving on to focus on the reference to Municipal Bonds Agency (MBA) within the strategy, the Committee sought information on the speed at which the Council could take advantage of newly developing finance opportunities, with the example provided of Green Bonds.  In response, members were advised that MBA had been around for a number of years and referred to previously as an alternative source of financing to the Public Works Loan Board (PWLB).  The MBA issued bonds on capital markets with the proceeds then lent to local authorities but was recognised as a more complicated source of finance than the PWLB.  For this reason, the Council had previously raised the majority of its long-term borrowing from the PWLB but it was pointed the strategy would enable consideration (where consider appropriate) of long-terms loans from other sources and the appropriateness of issuing bonds and similar instruments, in order to access lower interest costs and reduce over-reliance on one source of funding in line with the CIPFA Code.

In terms of the approach towards Green Bonds, these were noted as being more of a local product in nature.  Whilst their use had previously been considered, it was noted the yield generated as a result was not as high as alternative sources of finance, with challenges and risks also identified in relation to the current viability of the green infrastructure projects they were designed to support as a result of the costs associated in serving the debt with the use of grant funding. Therefore, grant funding was identified as more favourable in terms of green initiatives.  Officers noted that whilst alternate financing options were subject to regular review and assessment the security and flexibility offered through the PWLB remained the preferred option.

·             Highlighting the reference to affordability in relation to the borrowing strategy and concerns regarding the impact of the significant cuts to local government funding and financial pressures being experienced by the Council as a result, further details were sought on the balance needing to be achieved in terms of the costs associated with management of the Council’s debt portfolio and returns being achieved as a result.  In response, officers advised that the key pressure related to periods of high interest rates and high inflation which would exacerbate scheme delivery costs and the price of financing capital projects.  As a result, the inclusion of schemes within the capital programme continued to be subject to detailed viability assessments in terms of their affordability and finance requirements with the need for corporate investment mainly now reserved for schemes delivering large scale housing assets.  These corporate investments were built into the Medium Term Financial Strategy (MTFS) in order to ensure that the debt and interest costs were covered with a range of other funding sources also utilised including capital receipts, grants, section 106 agreements and Community Infrastructure Levy (CIL) and the Council continuing to work closely with its Treasury Advisors to ensure that, where required, borrowing occurred at optimal points (including a mix of long and short term options) to avoid the most significant market volatility and with upper and lower limited set within the Prudential Indicators relating to the maturity structure of the Council’s borrowing and debt profile and refinancing requirements.

The Committee thanked officers for the clarification provided and noted that the government was becoming increasingly stringent regarding new house-building targets with details therefore sought on the Treasury Management approach towards developing the investment and level of reserves likely to be required as a result.  In response, members were advised that the Treasury Management Strategy was designed to reflect the approach towards funding for schemes already included within the approved capital programme rather than those being developed to address future demand or targets.  Whilst potential future schemes were included within the capital pipeline the financing of these schemes would not be reflected within the strategy (with reference as an example to elements of the South Kilburn regeneration programme) until they had been assessed as financially viable and formally approved for inclusion as part of the capital programme, also taking account of the housing grant allowance available through the Mayor for London.

·             Following reference to the Capital Programme, further details were sought on the level of planned regeneration activity over the medium term as a key driver for demand in relation to the future CFR.  In response, members were advised that this primarily consisted of the Wembley Housing Zone development which was currently driving the largest element of capital demand.

·             As a final issue raised, details were sought on flexibility regarding the potential use of Community Infrastructure Levy (CIL) funding to support the Council’s capital investment programme based on examples of its more creative use within other local authorities.  In response, members were advised that the use of CIL was currently regulated by criteria restricting its use towards infrastructure projects linked to growth in the area.  In seeking to maximise the use of CIL funding, members were advised that the range of schemes being considered was subject to ongoing review to ensure the available funding was utilised as broadly as possible within the necessary legal and financial constraints.

As there were no further questions the Chair thanked Amanda Healy, Sam Master and Nadeem Akhtar for presenting the report and responding to the Committee queries and the Committee RESOLVED to note (on the basis of its consideration at the meeting) the draft Treasury Management Strategy 2025/26 as detailed in Appendix 1 of the report with the final version to be included in the annual Budget Setting Report to be presented to Cabinet and Full Council in February 2025.