Agenda item

To provide Members with an update on Treasury Management performance and activity to ensure best practice is maintained (report of the Director of Finance (Section 151 Officer) enclosed.

Consideration was given to the report of the Director of Finance (Section 151 Officer) which provided members with an update on Treasury Management performance and activity to ensure best practice is maintained.

The Treasury and Investments Manager (PSPS) summarised the Treasury Management Update (at Appendix 1) which included the following main areas:

• Economic Update with commentary provided by MUFG Corporate Markets - it was noted that the Monetary Policy Committee (MPC) had met earlier on the day of current meeting, which had resulted in no changes to interest rates;
• Interest rate forecasts - the ongoing situation in the Middle East was expected to affect future interest rate forecasts which would be reflected in the Q4 Treasury Report 2025/26;
• Annual Investment Strategy – the Council’s investments had increased to £39m due to receipt of grant funding of around £17m;
• Borrowing;
• Debt Rescheduling – the Director of Finance (Section 151 Officer) provided a verbal update on this aspect at the end of this item;
• Net Treasury Position; and
• Compliance with Treasury and Prudential Indicators (with indicators shown in tables at Appendix 1A)

Members considered the report and made the following comments:

• Members referred to point 5 and asked whether the Council’s fixed?rate borrowing shown as maturing in March 2062 was repayable in instalments or as a single sum.
  • The Treasury and Investments Manager (PSPS) responded that the Public Works Loan Board loan was taken out on a 50?year term and that the full balance was repayable at the maturity date.

• Members referred to point 7 and queried what actions had been taken to safeguard the combined favourable net treasury position  from volatility in the final quarter of the financial year.
  • The Treasury and Investments Manager (PSPS) advised that forecasts were based on projected cash balances and prevailing interest rates, and that both cash flows and market conditions were monitored continually to ensure forecasts remained robust.

• Members queried potential implications for the Council should interest rates remain higher than had been forecast, or increase further.
  • The Treasury and Investments Manager (PSPS) responded that, as a result of situation in the Middle East, the anticipated MPC reduction in the interest rate to 3.5% had not taken place and short term interest rates had risen considerably. Whilst many councils were looking to borrow funds at this period, SHDC was in a relatively advantageous position as a net lender, with fixed?rate borrowing protecting it from increases, while higher interest rates would potentially increase investment income as investments matured.

• Members queried the continued holding of a negligible balance with a Swedish bank shown in the investment portfolio, noting the lower return.
  • The Treasury and Investments Manager (PSPS) advised that the majority of funds had been withdrawn due to the low interest rate. A small balance had been retained to keep the account open in case rates improved, thereby avoiding the need for a lengthy re?onboarding process.

• Members requested that the issue dates for Welland Homes loans be included within future reports.
  • The Treasury and Investments Manager (PSPS) agreed to this inclusion in future reports.

• Members referred to point 5 of the report and asked whether the Council still required the budgeted £10m HRA new borrowing previously identified within the capital programme.
  • The Treasury and Investments Manager (PSPS) explained that while additional borrowing had been budgeted to finance the Capital Programme and would be considered in the future, this had been delayed while cash balances remained high following the receipt of grant funding, in order to avoid unnecessary interest costs.

The Director of Finance (Section 151 Officer) provided the following ‘live’ update on debt rescheduling activity being undertaken during Q4 2025/26:

• Volatile market conditions had created an opportunity to redeem approximately £67.5m of existing debt at a discount of £18.3m, reducing the repayment cost to just over £49m. The discount would be released to the revenue account over a ten?year period;
• To facilitate the repayment, new borrowing of £50m had been undertaken in five tranches of £10m, with staggered repayment dates commencing in just over two years’ time. This approach intended to provide flexibility for both the Council and any future unitary authority. Although the new loans carried a higher interest rate, the reduced borrowing level would result in an annual saving of approximately £84,000 in interest costs; and
• The transaction was being progressed under delegated authority in accordance with the Constitution and the Treasury Management Strategy, with involvement of relevant senior key officers. Further details would be reported through the next quarterly update and to Cabinet.
  • Members welcomed the update and thanked the Director of Finance for the approach taken.

AGREED:

That the Q3 Treasury Report 2025/26 at appendix 1 be noted