Agenda item

This mid-year report has been prepared in compliance with the Chartered Institute of Public Finance and Accountancy’s (CIPFA) Code of Practice on Treasury Management and covers the activities to 30 September 2023. It enables the Audit and Governance Committee to scrutinise the report prior to making comment to Full Council.

During the period to 30 September 2023, the Council complied with its legislative and regulatory requirements, including confirmation that the authorised limit was not breached.

[20 Minutes]

Upon the invitation of the Chair, the Group Head of Finance and Section 151 Officer introduced the report. He explained he was presenting this on behalf of the Senior Accountant (Treasury). This mid-year report had been prepared in compliance with the Chartered Institute of Public Finance and Accountancy’s (CIPFA) Code of Practice on Treasury Management and covered the activities to 30 September 2023. It enabled the Audit and Governance Committee to scrutinise the report prior to making comment to Full Council.

Investment income continued to perform well, with an expected investment income of £460k over budget. Interest rates remained high, however they were expected to reduce in due course. The Council were also due to repay unused energy support grants, which the Government gave to Councils in advance to provide  households with financial support during the financial crisis. This money had been invested, thus increasing the Council’s investment returns, but the next major repayment of money was due in 30 days’ time.

Arun still had no external borrowing outside of the Housing Revenue Account.  The Group Head of Finance and Section 151 Officer highlighted pages 38-40, which showed the prudential and treasury indicators. The Capital Finance Requirement (CFR) was the amount of capital expenditure that needed to be funded through borrowing. The CFR was set out on page 38, and the level of borrowing (table 4.4 on page 37) showed actual borrowing to be far less than the CFR figure. This meant Arun that had ‘under borrowed’ which was a good thing, because it meant that it was able to fund capital expenditure through balances such as energy payment grant money, capital tax precepts, business rates, which Arun could take advantage of whilst the money was in their bank account. Under borrowing negated the need to take out new borrowing, and was not unusual for local authorities to do. Arun had a very robust cash flow forecast model. Page 39, table 5.6 explained the borrowing limits. Arun had 2 borrowing limits which the Council were statutorily obliged to set. The limits were down to the Council to decide. These were the Operational borrowing limit, which was the maximum amount of borrowing that the Council would operate within and the Authorised borrowing limit, which gave the Council some headroom should it be required. Officers were not permitted to allow borrowing to exceed this limit. Arun was well below the Operating borrowing limit, which represented a good position for the Council. He then highlighted section 6 starting on page 40, which gave a general economic update.

Members were then given the opportunity to ask questions. Clarification was sought on the 14.8 million figure under Net borrowing in the table on page 39. The Group Head of Finance and Section 151 Officer explained this figure was the difference between total borrowing and investments, so our net position was that we had more investments than we were borrowing.

It was asked where the money from investments would go. The Group Head of Finance and Section 151 Officer explained this was funding the general fund revenue services.

 As First Abu Dhabi Bank and Quatar National Bank were removed from the counterparty list earlier in the year, assurances were sought that similar investments to these would not be made in future. The Group Head of Finance and Section 151 Officer confirmed Officers were aware of the wishes of the Committee in relation to this. He explained they needed to ensure there were enough organisations on the counterparty list that were able to give a sufficient spread of investments and thus reduce risk whilst achieving investment security, liquidity and maximum yield. He was unable to definitively say that somewhere in the chain of Arun’s investments were not held in areas the Committee may not wish to invest in, however he would look into this and report back. The Chair stated that the wishes of the Committee were clear, and money should not be invested in banks with obvious human rights issues. The Group Head of Finance and Section 151 Officer reiterated that it was important investments were spread in a way that minimized risk, and the Council were governed by CIPFA and DLUHC regulations, which required them to do this.

Discussion continued regarding whether or not Members were happy to recommend the addition of the Money Market Fund in recommendation 2.4 to Full Council, as there were no obvious human rights issues to consider, or whether they wanted the Group Head of Finance and Section 151 Officer to thoroughly investigate the organisation prior to doing so. There was a suggestion of deferring this recommendation until the February meeting, whilst the Group Head of Finance and Section 151 Officer undertook further investigation of the Council’s investment portfolio, and the level of investments that may be in areas the Committee would otherwise not choose to invest in. Members agreed that they were happy to proceed with making the recommendation to Full Council, however they asked Officers to come back with this information to Members after the meeting. The Group Head of Finance and Section 151 Officer explained this was possible, however he wanted Members to be aware that there was a large list of investments to look at, and it may uncover some areas Members did not feel comfortable investing in. He explained that deferring the recommendation until February did slightly heighten risks regarding not having sufficient counterparties to mitigate investment risks. Members were confident Officers had picked State Street Global Advisors (SSGA) with consideration to the Committees previous instructions on the directions of how they wished to invest in the future. It was asked whether Officers were aware which particular funds we would be looking at investing in. The Group Head of Finance and Section 151 Officer explained this was not known yet. One Member also pointed out that the SSGA group had good ESG credentials, which was something that the Committee were keen to see.

The Chair again raised whether Committee felt they needed to defer this recommendation or whether they felt happy to proceed. Members were happy to proceed but again asked the Group Head of Finance and Section 151 Officer to provide information to Members after the meeting regarding the portfolio funds of SSGA. It was confirmed the outcome of this did not affect the recommendations being made to Full Council this evening.

The recommendations were proposed by Councillor Purser and seconded by Councillor Jones.

The  Committee

 RECOMMEND TO FULL COUNCIL that

1. the mid year treasury management report for 2023/24 be noted;

2. the treasury mid-year activity for the period ended 30 September 2023, which has generated interest receipts of £1,068,012 (4.65%). Budget £1,540,000 (3.20%), be noted;

3. the actual prudential and treasury indicators for 2023/24 contained in the report be noted; and

4. the addition of a further Money Market Fund (MMF) – State Street Global Advisors (details of which can be seen in 2.4 of appendix 1) be approved.