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Agenda item

Q1 Prudential Indicators (Treasury Management)

Purpose

To report to the Audit and Governance Committee the quarter one

Treasury Management Indicators as required by the CIPFA Treasury

Management Code.

 

Recommendation

That the Audit and Governance Committee resolves to:

  1. Note the 2025/26 Treasury Management Indicators (Q1).

Minutes:

The Deputy Chief Executive Officer explained that the item was a quarterly report, part of the five major reports delivered to the Council each year. He also noted that the half-year and outturn reports would include greater detail than this first quarter report; this item was more focused on whether the Council remained compliant with the Treasury Management Strategy as adopted in February 2025.

The officer continued to section 4, the liability benchmark, explaining that this illustrated what the underlying borrowing need for the Council would be in the near future without significant departures from current circumstances. Where the end figure at the bottom of the benchmark table included a bracket symbol, this indicated that the Council would meet all obligations without borrowing, whereas a figure without this symbol implied a potential need to borrow. The officer noted that at the time of the Committee meeting this was mostly affected by the planning for, albeit without a commitment to, the replacement of the District’s waste vehicle fleet at some point in the period of 2026-2028 with an estimated cost of around £6m – and that the most cost effective way of delivering these replacements was currently under investigation. Page 106, as noted by the officer, set out whether long term treasury management investments were compliant with requirements, generally focusing on pooled funds with a value of around £12.5m against an upper limit of £13m. The officer explained that with these investments the value could increase as well as decrease, but the Council was fully compliant with requirements as listed. The officer finally explained that on page 107 was a forecasting table indicating the effect of a 1% increase or decrease of interest rates on the Council’s portfolio, but that as members may have been aware national interest rates had remained high for external long- and short-term borrowing. A previous draft included an error making the 0.02 figure in the middle column 2p rather than £0.02M which had been corrected in this issuance.

The Committee queried how forecast accuracy was measured from previous periods. The officer answered that typically officers had underestimated returns and overestimated costs, leading to a trend of forecasts anticipating worse returns than in reality. The officer explained that this had been considered a prudent budget expectation – assuming that the liquidity of the Council would reduce faster than it did or that interest rates would decrease sooner would lead to, as he felt, a preferred outcome of the Council overperforming against forecasting rather than falling short and potentially having an investment deficit. The officer confirmed that forecasting accuracy was not measured directly, with the expectation that if investments came closer to breaching any established estimates the Committee would rightly interrogate this.

The Committee noted, as on page 106 as an ‘additional indicator’, that the Council had received its own credit rating and queried which organisation had been calculating this. The officer explained that the rating was specifically for exposure regarding investments, not a rating for the Council itself, and added that only four or five local authorities have made the effort to calculate their own credit rating. This indicator calculated the average credit rating of the Council’s investment portfolio; it was included to ensure the Council avoided investing in ‘junk bonds’, subprime mortgages with lower credit ratings, and other riskier options.

The Committee, further to the previous question, queried the external advice sought by the Council, which the officer explained was provided by Arlingclose as the Council’s Treasury Management Advisors. The officer clarified that this organisation offered advice only, and all decisions remained with internal officers, but that it would be fiscally prudent to take their advice into account. Arlingclose assisted the Council with identifying appropriate limits for how investments are made and for how long against credit ratings, as well as doing the same for potential borrowing and interest rates.

The Chair thanked officers, remarking that the Committee had thoroughly interrogated the report.

RESOLVED: The Committee noted the report.

 

Supporting documents:

 

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