Agenda item

This report updates Members on Treasury activity for the first half of the financial year 2024/25 (Q 1 & 2) in accordance with the Local Government Act 2003 and the Local Authorities (Capital Financing and Accounting) Regulations 2003 which require that regular reports are submitted to the relevant Council Committee detailing the Council’s treasury management activities.

Nadeem Akhtar (Senior Finance Analyst) introduced the Treasury Management Mid-Year Report, which provided Members with an update on Treasury activities for the first half of the 2024-25 financial year.

In considering the report key issues highlighted were as follows:

·             The Council had maintained compliance with its Prudential Indicators (as set out in Appendix 4 of the report) as of Quarter two 2024-25.

·             Outstanding borrowing as at 30 September 2024 was £791.9m representing a decrease of £22.4m from £814.3m at the start of the financial year with this change related to the repayment of loans.

·             Cash investments as at 30 September 2024 totalled £38.6m, which had decreased by £56.7m from £95.3m over the financial year. This reduction was attributed to the repayment of maturing debt and ongoing investment in the Council's capital programme in lieu of borrowing.

·             As at 30 September 2024, the Council had incurred £15.7m in interest payments related to servicing its loan portfolio as set out in Appendix 2 of the report.

·             The Council had generated £3.6m in interest income on cash investments as at 30 September 2024, which in part reflected the Bank of England's Bank Rate, that was reduced from 5.25% to 5.00% in August 2024.

·             The ongoing volatility in relation to the national economic context under which the Council’s Treasury Management Strategy had been operating as detailed within the economic commentary within Appendix 1 of the report.

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

·             Referring to the update on the Capital Financing Requirement (CFR), further details were sought on the monitoring and forecasting process in relation to delivery of the capital programme given the slippage reported during the current financial year and associated impact on the CFR and costs associated with borrowing for capital purposes.  In response, Amanda Healey (Deputy Director Investment & Infrastructure) assured members that borrowing to for capital purposes was not undertaken in advance of projects being included on the capital programme with short term trends monitored in terms of the CFR forecast based on expected demand.  Whilst acknowledging the slippage in delivery of the capital programme it was highlighted that 80% of the programme remained on track which provided acceptable levels of certainty in terms of the forecasting process and was subsequently built into the CFR.  Performance in relation to delivery of the capital programme was also subject to regular review as part of the quarterly budget monitor reports to Cabinet.

Responding to a follow up query, officers advised that trends in relation to the CFR were also subject to regular monitoring based on analysis conducted with the Council’s Treasury Management Advisors, including performance in relation to delivery of the capital programme to support the modelling process.  In noting the current challenges identified in relation to delivery of schemes on the capital programme (given current viability assessments) and associated impact on the forecast process the Committee noted the impact which development of the capital pipeline was having in assisting to manage the programme and ensure schemes were able to progress for approval and financing once assessed as viable.  In recognising the issues raised, however, the Committee advised they were keen to ensure that regular monitoring in terms of delivery of the programme and the scheduling of its financing requirements continued to be undertaken to minimise the financial risk associated with maintaining the capital finance borrowing requirement.

·             Following the focus on the capital programme, specific details were sought on progress with delivery of the South Kilburn regeneration programme and associated CFR.  In response, officers outlined the way in which delivery of the scheme was being undertaken in phases with each element only brought forward on the capital programme once the cost and funding requirement had been assessed as viable in order to minimise risk.

·             In noting the forecasts in relation to Section 106 funding as part of the Capital Expenditure and Financing forecast position for Q2 confirmation was sought that officers remained comfortable with the position outlined, which officers confirmed based on the way in which s.106 needed to utilised and would be linked to specific developments as they came forward for approval.

·             Further details were sought on the reduction identified in relation to Money Market Funding, which members were advised had related to the level of funds used in cash outflows, largely to fund maturing debt, credit invoicing, and repaying debt.

·             Clarification was also sought on use of the Public Works Loan Board (PWLB) Housing Revenue Account (HRA) concessionary rate as a means of supporting local authorities borrowing in relation to the HRA and for refinancing HRA loans and the relationship with the Affordable Homes funding available through the Mayor for London.  In outlining the arrangements for use of the PWLB concessionary rate members were advised that whilst the Council had not sought to borrow any funding under these arrangements prior to Q2 the intention was to take advantage of the HRA rate prior to the end of the financial year to support (alongside funding secured through the Mayor for London’s Affordable Housing Grant programme) the delivery of social housing across the borough with the range of borrowing options available contributing to the viability assessments for each scheme and impact on CFR.

·             In response to details sought on the funding totalling £218.4m provided by the Council to i4B Holdings Ltd and £34.3m to First Wave Housing Ltd (as detailed within section 3.12.2 of the report) which had been secured against properties held by each company, details were sought on the current valuation of each companies assets and interest rates being charged against the loans secured.  In response, officers advised that valuations had been undertaken with the assets held by each subsidiary company being valued above the value of loan arrangements and interest rates matching those available to the Council.  It was noted that the loans provided were intended to serve a specific purpose in terms of capital investment and not designed for cash flow management, with the investments expected to generate £6m of income for the Council in 2024-25, covering the cost of borrowing as a means on investing in housing delivery using the Council’s wholly owned subsidiaries.

·             As a final issue, reference was made to the graph in Appendix 3 of the report relating to internal investment average rate v credit risk with further details sought on the current risk rating.  In response, Amanda Healy advised that the change in risk score reflected did not reflect any specific increase in risk profile but tracked current trends in relation the current market and credit risk scores value weighted across the sector with the Council having retained its high credit quality and avoiding more risk based investments.

As there were no further questions the Chair thanked officers for the update provided and the Committee RESOLVED to:

(1)        To note the Treasury Management financial performance up to Quarter 2 2024-25 with the Council having complied with the Prudential Indicators as set by Council in February 2024.

(2)        Approve 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.