Agenda item

A report that provides members with the opportunity to review the performance of the Treasury Management function of the Council for the first quarter of 2023/24.

The Scrutiny Board received a report, of the Director of Finance that explained the key issues within the 2023/24 Treasury Management Quarter One Review. The consideration of a Quarter One report, was a new requirement with effect from the commencement of the 2023/24 financial year. In considering the report Members were made aware that the report had previously been considered by the Audit Committee, at its meeting on 5^th September 2023 and by the Cabinet on 18^th September 2023.

The Scrutiny Board was informed that from the start of 2023/24, following a competitive tendering process, the Council had changed its treasury management advisors from The Link Group, Treasury Solutions to Arlingclose Ltd. The format of the Treasury Management reports had therefore changed in line with the advice received from Arlingclose Ltd.

The 2021 Prudential Code requires Treasury Management to be reported quarterly from the financial year 2023/24. The presentation of the Treasury Management Quarter One Review 2023/24 would enable scrutiny of the statutory requirements.

The level of capital expenditure formed one of the required prudential indicators.  The 2023/24 projected outturn, based on actual expenditure to month 3 was £103.748m, a reduction of £6.557m compared to the original budget expenditure of £110.305m.  Projects and their associated financing packages will be reprofiled into 2024/25 and future years.  

Capital Grants (£39.962m), capital receipts (£8.295m), Revenue and other resources (£1.063m) and prudential borrowing (£54.428m) were the sources of capital financing of the revised position.

The Council’s underlying need to borrow for capital expenditure is termed the Capital Financing Requirement (CFR).  This figure is a gauge of the Council’s debt position.  Part of the Council’s treasury activity is to address the funding requirements for this borrowing need.  Depending on the capital expenditure programme, the treasury service organises the Council’s cash position to ensure sufficient cash is available to meet the capital plans and cash flow requirements. 

At the end of 2022/23, the CFR was £465.723m, and was forecast for the year 2023/24 to be £503.278m. The estimated quarter one CFR, based on the projected expenditure referred to above is £493.124m.  The decrease is as a result of the reduction in actual capital expenditure in 2022/23 and the projected position in 2023/24.

At the end of June 2023, the Treasury position was such that the net borrowing position was £80.516m.  This was made up of: Total external borrowing £160.996m and: Investments £80.480m

Comparing this to the estimated borrowing CFR (CFR less PFI) of £299.337m means that the Council is estimating to be under-borrowed by £113.341m, compared to actual 2022/23 under borrowed position of £100.338m.

No borrowing or debt rescheduling has been undertaken to date in the current financial year. It is anticipated that if the capital programme expenditure continues as projected then £25m of new borrowing will be required to fund this. The value of new borrowing is well within the approved £54.428m of prudential borrowing in the programme. Furthermore, it is confirmed that the Council operated within the prudential indicators as set out in the annual treasury management strategy for the first quarter of the 2023/24 financial year

The authorised limit is the “affordable borrowing limit” required by Section 3 of the Local Government Act 2003 and represents a control on the maximum level of borrowing.  The operational boundary is the expected borrowing position of the Council during the year and reflects the maximum anticipated level of external debt.

There has been no change to these limits to those that were set in the 2023/24 Strategy presented to Council on 1^st March 2023.

There was another new indicator which compares the Authority’s actual existing borrowing against a liability benchmark that has been calculated to show the lowest risk level of borrowing. The liability benchmark is an important tool to help establish whether the Council is likely to be a long-term borrower or long-term investor in the future, and so shape its strategic focus and decision making.

The liability benchmark calculation expects that the Council will be a long-term borrower to finance the expected capital spend. There could be timing differences between when the Council externally borrows compared to when the expenditure is required due to the nature of capital works, but new treasury investments are therefore primarily made to manage day-to-day cash flows using short-term low risk instruments.

Oldham Council has several Lender Option Borrower Option (LOBO) loans that have a call date during the summer months. The lender had the option to increase the interest rate when each loan reaches its call date. As the Council was operating in a rising interest rate environment, there may be opportunities to repay the Council’s historical LOBO borrowing. The Council would continue to investigate all opportunities and would ensure any repayments created revenue savings.  LOBO loans were held by banks and are not Government loans.

The Treasury Management activities followed the pattern of the established experience and good practice further evidenced with a rating of ‘good’ (the highest possible rating) in the recently issued Fundamental Financial Systems audit undertaken by the Internal Audit Team on the Treasury Management function.

Resolved:

That the Scrutiny Board notes the report.