Agenda item

This report sets out the outturn for the Council’s Treasury Management Activities for 2024-25 updating members on both borrowing and investment decisions in the context of prevailing economic conditions and the Council’s Treasury Management performance.

Nadeem Akhtar (Senior Finance Analyst) introduced the report which would cover the Treasury Management activities for the previous financial year.  Nadeem Akhtar began by stating that the presentation on the report had come to the Audit and Standards Advisory Committee for scrutiny before its eventual submission to Brent’s Cabinet. He explained that the report, with four appendices, updated members on the borrowing and investment decisions made by corporate and financial resources under delegated authority. The highlights from the report are summarised below:

·            The Council had complied with its prudential indicators for the 2024-25 financial year, which were initially set at full council in February 2024, with no breach of indicators reported. Outstanding debt as of March 2025 was stated to stand at just over £900 million, having increased from £814 million at the start of the financial year (correcting an initial figure mentioned as £894 million), representing a net change of £86 million. This change in debt resulted from raising new borrowings of £170 million while paying back £84 million of existing debt, with the borrowed funds used to finance the capital program. Cash investments as of March 2025 totalled £47 million, having decreased from £95 million at the start of the financial year, representing a change of approximately £48 million. The council's capital financing requirement, which represents the underlying need to borrow, had changed from £1.25 billion to £1.35 billion, a net increase of £100 million, again reflecting forecast investment made in the capital programme. The council's rate of return on cash investments decreased during the year from 5.3% to 4.5%, reflecting numerous changes in the Bank of England's base rate during the course of the year. The statutory charge for repayment of debt, known as minimum revenue provision (MRP), was just under £20 million and excludes PFI schemes.

The chair acknowledged the scale of the figures, noting that with £900 million of debt, even slight movements in rates would make significant differences. The Chair then congratulated the Finance Team for managing to reduce the average cost of borrowing in a rising interest rate environment. Following this, the Chair opened the floor to questions from the Committee with the highlights of these questions summarised below:

·            Regarding budgetary developments, members raised concerns about the capital financing requirement being forecasted to reach £1.5 billion against an authorised limit of £1.5 billion, questioning officer on whether there was concern given that markets showed no real signs of interest rates decreasing. Debt maturity was also discussed, with members noting that significant debt was maturing within the year and asking about potential refinancing strategies. Amanda Healy (Deputy Director of Finance for Investment and Infrastructure) responded that CFR increases are ultimately driven by the capital programme. When looking at new capital programme schemes for inclusion, they examine affordability, with the most significant growth in the capital programme relating to affordable housing development, which has underlying cash flows to enable asset delivery and debt repayment. She explained they work closely with treasury management advisors to evaluate the best mechanisms for borrowing required sums over coming years, especially given interest rate environment movements that are difficult to navigate but require constant assessment. Regarding maturity structure, she confirmed that a significant portion of their portfolio was coming up for renewal in 2025-26, which was part of their intended strategy. Brent generally preferred to keep a proportion of debt in short-term holdings to ride through interest rate waves, as rates were expected to decline, allowing them the Finance Team to take reasonable small risks rather than fixing rates at current levels. Small amounts of short-term borrowing had been taken and officers noted that they would assess next year whether to renew in medium or long-term arrangements.

·            Discussing the PFI loans listed in appendix two, members noted their higher than desired rates, despite them consisting of relatively small amounts. The Committee questioned when these loans mature and whether they demonstrated a valid reason to avoid future PFI arrangements. Amanda Healy clarified that these aren't traditional borrowing agreements but long-term liabilities, acknowledging the extremely high rates compared to the rest of their portfolio. She confirmed they hadn't undertaken PFI agreements for a significant period and wouldn't be doing so going forward, as different alternative funding options were now available and PFI were no longer considered a viable option.

·            It was noted that capital funding figures seemed to change enormously from year to year, with an example given where grant funding of £52 million had apparently disappeared in forecasts. Amanda Healy explained that projects in the capital programme were multi-year, and applying the funding was based on when projects were started or completed. Grant phasing was timed along with actual schemes progress – such as the housing scheme completions expected in 2025-26. Any changes to scheme delivery will change when grant can be applied to fund the associated works. As such, Amanda Healy assured the Committee that every affordable housing scheme would have a grant element.

·            Concerns were raised by members regarding short-term deposit accounts used for liquidity, with some members specifically mentioning CCLA recently acquired by Jupiter Asset Management. It was noted that CCLA had a triple-A rating while Jupiter had a triple-B rating. Whilst it was the Council's policy to require a A-plus rating, the fund's rating was reported no to have changed, as CCLA remained as shareholders rather than a subsidiary. Amanda Healy spoke on the issues, addressing the Committee’s uncertainty and confirming that the Finance Team maintain constant engagement with advisors who proactively contact relevant organisations to obtain assurances about fund operations, often giving indications where performance dips or structural changes could result in discontinuing product use. She noted this would be discussed with our advisors and noted the CCLA fund was domiciled in the UK.

·            Covering the Council’s investments, officers were asked why it maintained more liquid assets than was typically approved, asking whether the risk-to-return ratio was appropriate. Amanda Healy explained that peaks and troughs in cash balances were driven by borrowing undertaken in year. The Council is a net borrower so this drives the volatility within periods but also means it could not undertake long-term investment opportunities and had to focus on reviewing cash flow requirements.

·            The use of cash held for other purposes to keep external borrowing lower was explored by the Committee, which questioned the impact on these internal borrowing activities. Amanda Healy explained that Brent were utilising cash reserves not yet called upon, including existing balances and reserves, which represented best practice for prudent cash management. Officers stated that when these funds need to be utilised, borrowing would be required.

·            Inquiries were made about service investments listed under "schools, academies, and colleges,", with members asking for examples of the specific definitions of service investments in this category. Amanda Healy clarified that these were historical investments that had been transferred into loans during the academy conversion process and not new opportunities.

·            Regarding attempts to forecast future UK interest rates, members asked how quickly interest rates changes would affect Brent when they reduced, and what impacts further decreases this would have. Amanda Healy explained that investment portfolios generally saw the results of interest rate movement impacts before debt portfolios. This was because investments were held in more liquid assets, which were more closely linked to current interest rates. For borrowing portfolios, officers stated that rate changes only impacted new borrowing, not existing portfolios. While base rates had recently declined, local authority borrowing rates were linked to government gilts, which haven't followed the same trend and stood at around 6% at the time of the meeting. Many factors were stated to impact these government gilts, and while they were expected to drop over time, their volatility was shown. Officers assured members that they assessed options based on Brent’s current borrowing needs, with their current approach being to borrow little and often with the intent to ride out peaks and troughs in interest rate fluctuations.

·            Amanda Healy noted that further details would be provided to the Committee in the Finance Teams mid-year report for 25/26 rather than for 24/25. A LOBO (Lender's Option Borrower's Option) recall had occurred during the first part of the year, where the PWLB (Public Works Loan Board) rate was valued at lower than what was being offered. As a result, the loan was redeemed to help with costs and included within their wider portfolio. Amanda Healy observed that recent market movements, including impacts from political announcements around tariffs, had created a volatile treasury environment. When questioned around borrowing from the pension fund, Amanda Healy clarified that Brent could not directly borrow from their own pension fund due to concerns around financial conflicts of interest, though potential opportunities for local investment might potentially exist through the London CIV (Collective Investment Vehicle).

Following this, and with no further questions or concerns raised by members of the Committee, the chair thanked Amanda for a comprehensive report and the Committee moved to RESOLVE and note the contents of the financial performance report and its submission to cabinet, acknowledging that officers had met all prudential indicators.

A recommendation was made to also note and comment on the overall financial performance of the report.