Agenda item

This report sets out the outturn for the Council’s Treasury Management Activities for 2025-26 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, Finance, Infrastructure and Investment) introduced the report, which presented the Treasury Management outturn position for 2025-26 (April 2025 to March 2026), providing assurance that Treasury Management activity had been undertaken in line with the CIPFA Treasury Management Code and the Council's approved strategy. In presenting the report, the following key points were highlighted:

·            The Council had remained compliant with its Prudential Indicators and had managed its borrowing and investments prudently during a year characterised by continued market volatility, inflationary pressure and geopolitical uncertainty, including the impact of US trade tariffs (April 2025) and the US-Israel-Iran conflict (February 2026). The Bank of England base rate reduced from 4.5% to 3.75% during the year, though long-term borrowing rates remained relatively high, and inflation, while easing, remained above the Bank of England's 2% target.

·            The Council's overall borrowing position as at 31 March 2026 stood at £1.074 billion, an increase of £174 million on the previous year, reflecting borrowing to support the capital programme (including housing, regeneration and infrastructure investment). £295 million of new borrowing had been raised during the year and £121 million of existing debt repaid.

·            £20 million of the debt repaid related to two LOBO (Lender Option Borrower Option) loans of £10 million each which had review dates during the year; the lenders had exercised their option to increase rates from between 4% and 5% to over 6%, and both loans were accordingly repaid. One further LOBO loan remains due for review this year, with the same options to be considered. Officers noted that the Council's ‘little and often’ approach to borrowing had continued to help manage interest rate risk and avoid locking in large amounts of debt at unfavourable points in the market.

·            The Capital Financing Requirement (CFR), representing the Council's underlying need to borrow to fund its capital programme, as distinct from external borrowing actually drawn down at a point in time, remained a key Prudential Indicator. The difference between the two figures reflected internal borrowing, whereby cash resources such as reserves and working capital were used to fund capital expenditure in place of external borrowing, generating an interest cost saving.

·            Investment balances stood at £43.8 million, a small decrease on the previous year, held entirely in liquid money market funds consistent with the Council's security and liquidity approach, with a strong average portfolio credit rating of A+.

·            The Committee was asked to note the Treasury Management outturn performance and compliance with the Prudential Indicators, ahead of the report proceeding to Cabinet and, ultimately, Full Council for approval.

Amanda Healy added that the report reflected the Council's ambitious capital programme, requiring a careful balance of internal and external borrowing, grant funding and developer contributions, and drew attention to the Council's continued strong investment security position (Table 9), supporting the delivery of housing for residents affected by the housing crisis.

Following this, the Chair thanked Amanda Healy for her report and invited questions and comments from the Committee, with the following issues raised below:

·            In relation to paragraph 3.43, Members sought clarification of the term ‘appropriation’ in the context of amounts moved between the General Fund and the ring-fenced Housing Revenue Account (HRA), and the benefits or drawbacks of such movements. Officers explained that this was a legal technicality: where the Council undertook regeneration or land development, assets could be appropriated from the HRA into the General Fund to support delivery of a scheme, before being transferred back to the HRA on completion, with the associated debt following the asset between the two balance sheets.

·            Moving on, questions were raised over restrictions on the Public Works Loan Board (PWLB) borrowing, specifically on whether any approval process applied at the point borrowing was drawn down, and how the Council assured itself that funds were used as intended and not primarily for yield. Officers explained that Treasury Management activity was distinct from investments for service purposes (such as loans to other public bodies) and from investment purely for yield, which some other authorities had historically undertaken (for example acquiring commercial property outside their local area) but which Brent did not undertake; central government had introduced additional governance and reporting requirements and restrictions on new PWLB borrowing as a result, requiring the Section 151 Officer to provide assurance, at the point of borrowing, that no such yield-only investment was planned within the capital programme, which was itself approved (and therefore subject to member oversight) at Full Council. Sebastian Evans noted an apparent discrepancy of approximately £10.3 million in the short-term borrowing line of Table 3 (Treasury Management Summary, page 64); officers agreed to review and revise this figure.

·            Regarding the increase in borrowing to £1.074 billion, it was queried how sustainable the Council's borrowing strategy was over the medium term if interest rates remained higher than forecast; officers explained that the largest proportion of debt-funded capital expenditure related to housing and regeneration schemes, which were subject to viability assessment to ensure future cash inflows (such as rental income) would offset interest costs and support debt repayment, with the proportion of the revenue budget exposed to debt interest costs monitored as a Prudential Indicator. He also asked how rising construction material costs (cited as up to 30% in some cases) were reflected in the budget; officers confirmed this was assessed at the viability stage for individual schemes rather than reflected directly in the Treasury Management report, and that the capital pipeline was consequently challenging, with alternative funding routes such as GLA grants being actively explored to mitigate or delay borrowing. Further points were asked about the impact of future borrowing requirements on the Medium-Term Financial Strategy (MTFS); officers confirmed that Treasury Management fed into MTFS scenario analysis, including modelling the impact of a 1% overnight interest rate rise, and that a blend of maturities and long-dated debt was considered to manage exposure, noting that geopolitical shocks (including, in response to a further question, the impact of US tariff announcements) tended to be short-lived and were managed using the Council's ‘little and often’ approach, which allowed borrowing to be timed to avoid immediate market shocks.

·            A point on the Committee's operation was posed, with Members questioning whether it was normal practice for the lead Cabinet Member to attend and speak to a report. The Chair confirmed the Committee operated independently of Cabinet, but that on occasion (as with Councillor Grahl and Minesh Patel in his Section 151 capacity) it was helpful for a Cabinet member to attend, primarily to hear the Committee's feedback rather than to make political statements, with any non-member contribution made at the Chair's invitation. Councillor Grahl confirmed she attended chiefly to gain information from the Committee's scrutiny of her officers' work.

·            The subject of whether the Capital Financing Requirement (CFR) forecast at page 87 reflected current economic conditions or the position at the time of the February budget-setting process was raised; officers confirmed the CFR forecast reflected the approved capital programme as at the February budget setting, that Prudential Indicators were reported quarterly in line with the Treasury Management Code (with a Q1 position currently before Cabinet), and that the CFR forecast represented an absolute borrowing requirement rather than a commentary on how or when borrowing would be undertaken; officers indicated the current CFR forecast generally represented a worst-case position, with actual borrowing typically coming in lower due to capital programme delivery delays. It was asked whether clawback provisions applied to grant funding not spent on a timely basis; officers confirmed this varied by scheme, with some grant programmes (including GLA programmes) carrying milestone-related risk managed through capital programme and quarterly reporting governance, and that further detail could be shared with members if requested.

In closing the item, the Chair reminded members that he had previously flagged the level of the Council's debt as an area to watch, noting this was modelled within the Prudential Indicators rather than representing a specific new risk, and emphasised that the Committee's key role was to satisfy itself that the Prudential Indicators had been properly complied with and completed, these having originally been introduced to guard against unsustainable borrowing of the kind seen historically at other Local Authorities.

It was RESOLVED to approve the report for submission to Cabinet and Full Council, noting the Council's compliance with the Prudential Indicators and their continued significance.