Agenda item

This report updates Members on Treasury activity for the first half of the financial year 2025-26.

Oliver Simms (Head of Finance for Capital and Treasury) introduced the report, which updated Members on Treasury activity for the first half of the financial year 2025-26 in compliance with The Local Government Act 2003 and the Local Authorities (Capital Financing and Accounting) Regulations 2003 and Council’s Treasury Management indicators.

In considering the report the Committee noted:

·            The ongoing volatility in relation to the national economic context under which the Council’s Treasury Management Strategy had been operating during the first half of the year, as detailed within section 3.3 of the report, including the impact of UK Inflation and Monetary Policy, Economic Growth and Labour Market indicators along with Market Volatility and Gilt Yield Surge with a full economic commentary provided in Appendix 1 of the report.

·            The following key emerging issues in relation to Treasury Management performance, which included:

Ø   The level of borrowing identified as outstanding at 30 September 2025 being £951.2m representing an increase from £900.0m at the beginning of the financial year, a change of £51.1m. The change in debt was due to a combination of new loans to fund the capital programme and repayment of loans - both short term and long term borrowing.

Ø   Cash Investments at 30 September 2025 being identified as £38.6m compared to £47.1m at the beginning of the financial year, a change of £7.1m. The change related to the repayment of maturing debt and ongoing investment in the Council’s capital programme.

Ø   Forecast net interest costs for 2025/26 being £20.7m consisting of interest costs of £52.1m and interest income of £31.4m.

Ø   The Council having generated interest income of £1.27m on cash investments as at 30 September 2025. This income reflected the Council’s cash position and the current level of the Bank of England’s Bank Rate. Bank Rate which had been maintained at 4% in September 2025.

Ø   The economic environment remained highly volatile with sluggish economic growth and inflation remaining above the Bank of England’s 2% target, peaking at 3.8% in August. The Bank of England had cut interest rates from 4.5% to 4.0% with further cuts expected but these had not been fully reflected in rates, particularly long-term rates, available to local authorities because of the uncertain economic environment.

·            The summary of the Council’s cash position arising from the Council’s revenue and capital income and expenditure and balance sheet position with the underlying need to borrow for capital purposes being measured by the Capital Financing Requirement (CFR).

·            The Council had complied with its Prudential Indicators as at Q2 2025/26 (which members were advised had also published as an Appendix to the Council’s Q2 outturn report on 13 October 2025).

The Chair thanked Oliver Simms and Finance officers for the report and then invited the Committee to raise any questions they might have, which are summarised below:

·            In noting the Council’s level of borrowing and associated cost, assurance was sought from a strategic point of view regarding the affordability of the Council's approach towards borrowing and Capital Financing Requirement with a comparison also requested on the approach taken by other councils of similar size.  In response, Amanda Healy (Deputy Director Investment & Infrastructure) confirmed that borrowing cost forecasts were actively built into the Council's Medium Term Financial Strategy to ensure the forecast impact of the capital programme was incorporated into revenue budgets, though this represented a significant challenge. The majority of schemes requiring borrowing were generally housing-related where grants and cash flow could be used to help mitigate the cost of borrowing, though there remained significant pressure that would continue to grow based on the size of the capital programme. Officers advised benchmarking was difficult across authorities due to variations in the breakdown between General Fund and HRA borrowing and different sizes and requirements in relation to the Housing Revenue Account (HRA) and level of housing stock. Limited benchmarking was, however, available through the Council's external Treasury Management Advisors regarding the average cost of borrowing, with assurance provided that Brent was comparable and in line with their wider group of their clients.

·            Following on, clarification was requested on what (if any) options existed for the Council to provide an interest free borrowing facility to their subsidiary housing company i4B Holdings Ltd, given the substantial contribution being made in mitigating against ongoing pressures relating to temporary accommodation costs.  Officers advised that recent legal advice had been obtained on subsidy control laws. At current lending rates (which were noted to be significantly cheaper than market rates) the Council was not in breach of subsidy control regulations, but it was clarified the provision of an interest free loan facility would not be permitted in order to avoid providing unfair commercial advantage.  Recognising that the company provided a public benefit and was not acting purely commercially (in terms of housing tenants from the Council's waiting list rather than being open to any tenant) the rate the Council lent to i4B (reflecting the more advantageous Public Work Loan Board rates) was already highlighted as significantly cheaper than those available from a bank or commercial lender.

·            As a further issue, clarification was sought on the potential for the Council to borrow from the London CIV (Collective Investment Vehicle). Officers advised that at present there was no facility to borrow from the London CIV.  Changes being introduced in relation to the management of Local Authority Pension Schemes as a result of the Government’s Fit for the Future reforms had been designed to support local investment through CIV products, but these proposals were still in the process of being developed for implementation. Officers confirmed the Council was in discussions with LCIV to explore how such an arrangement could work, noting conflicts of interest in dealing directly with the Council's own pension fund.  whilst also seeking to maximize local investment alongside compliance with the fiduciary duty on the Pension Fund to its members. The London CIV is also exploring available opportunities to provide a funding blend that could make investments viable for both local authorities and them as investor.

·            Moving on, members raised questions about LOBO (Lender Option Borrower Option) loans, particularly in relation to section 3.7 of the report, noting the significant difference between the original and proposed loan rates when refinanced with Public Work Loan Board (PWLB) loans. Clarity was also sought on how much notice the Council received when lenders wanted to call in loans and the timescales for refinancing decisions. Officers confirmed that whilst notice periods varied, lenders would often provide more notice than the required. The Council’s Strategy had been developed to reflect the terms relating to the loan facilities and factor in provision for any repayment requirements, especially when rates were more favourable than current market rates. When asked to forecast future interest expenditure, officers confirmed they took a cautious view which reflected the maturity profile of the each facility, in order to provide a necessary buffer.

·            Moving on to discuss the link between borrowing and delays in delivery of the capital programme details were sought on the scheduling of borrowing and how this corresponded to project delivery. Officers confirmed that modelling around the Capital Financing Requirement (CFR) indicated expected borrowing levels, but this was monitored throughout the year. As forecasts for borrowing and capital programme spending plans changed, this had knock-on impacts on the CFR providing more realistic assessment of expected borrowing need. The full plan of expected borrowing transactions (quantum and timing) was maintained, but as the capital programme shifted or general cash flows changed (including grant receipt timings), borrowing plans were also adjusted with assurance provided that borrowing was undertaken on an as needed basis relating to project delivery.  Details were also sought as to whether any changes were being proposed by the Government under the Capital Receipts Regulations to enable more flexible use of capital receipts and the potential impact including whether this included proposals to allow the contribution of up to 10% of receipts towards revenue.  Whilst aware of proposed changes to capital receipts legislation around more flexible use, officers advised they would need to seek further clarification on the clarification being sought before being able to report back.

·            In concluding the discussion, the Chair requested a quick update on the impact of the budget on long-term interest rate projections.  Whilst no significant impact had been identified in relation to long-term rates some reduction in short-term rates had been observed, including the inter-authority market where the Council borrowed on a shorter-term basis with economic uncertainty being priced within the rates currently available through the Public Works Loan Board.  Whilst reductions in bank interest rates may reduce short-term borrowing costs it was felt these would be unlikely to have significant impact on the longer-term borrowing the Council typically undertook. Based on advice from Treasury Management Advisors, the Council's current strategy focused on borrowing over a 5–10-year period, designed to balance the risk of borrowing over a shorter-term period (given the exposure to refinancing and interest rate risk) against that over a longer period, which may not provide best value. The strategy was also noted to vary the maturity profile to avoid refinancing all loans simultaneously, which would expose the Council to higher risk levels.

As there were no further questions the Chair thanked Oliver Simms for presenting the report and responding to the Committee’s questions. On the basis of the update provided, the Committee RESOLVED to note the 2025-26 Mid-Year Treasury report for reference on to Cabinet and Council, in accordance with the Chartered Institute of Public Finance and Accountancy's Treasury Management in the Public Services: Code of Practice along with the fact that the Council had been fully compliant with its Prudential indicators.