Agenda item

Report of the Director for Finance and Corporate Services

The Service Manager – Finance presented the Capital and Investment strategy report for Q1 2022/23, which summarised the Council’s capital and investment activities for the period 2 April to 30 June 2022.

The Service Manager – Finance explained that the new addition to CIPFA’s Code of Practise recommends that Councillors are informed of Treasury Management activities quarterly (previously twice a year) and that this Q1 report ensures that the Council is embracing best practice for the scrutiny of capital and investment activity.

The Group were advised that besides more frequent monitoring the Treasury Management Code recommends that specific training for members involved in governance scrutiny and broader training for members on full council, and the introduction of a Liability Benchmark to manage debt. It was also noted that in respect of the prudential indicators there is to be greater focus on climate and environmental, social and governance risks when making financial decisions.

The Service Manager – Finance referred to the economic forecast, which highlighted the UK’s deteriorating economic outlook, with prices for fuel, energy and food rising and the Bank of England warning that inflation may reach 12%. The Group were informed that Link Group, the Council’s Treasury Advisors are forecasting interest rates to increase to 4% by Christmas and 5% by March 2023. Based on Link’s forecast the Group were advised that the Council has budgeted to receive £673,300 in investment income in 2022/23 compared with £462.100 in 2021/22. It was noted, that in order to maintain returns and to mitigate risk, the Council has continued to diversify its investment mix, a table highlighting the investment activity was provided in the report.

The Service Manager – Finance provided a summary of the Council’s range of Prudential Indicators to monitor both Treasury and Capital activities, details of the performance against the Prudential Indicators was provided at Appendix A attached to the report, these included capital expenditure, Financing costs to net revenue streams and expected investment position.

The Group were informed of the Council’s commercial investments in respect of income and costs and were advised that income is expected to be around 20% in the current year.

In concluding, the Service Manager – Finance advised that Treasury Management continues to be challenging with the risk of a recession remaining real causing inflationary pressures and rising interest rates on the UK economy.

The Group were advised that officers will continue to be vigilant and report any significant issues to the Governance Scrutiny Group.

The Group commented on the economic picture being fraught with difficulties and expressed their concerns in respect of high inflation and a recession (‘stagflation’), and asked officers how they propose to manage the Council’s declining investments. The Service Manager – Finance advised that a more frequent insight of reporting of the key indicators, including cash balances and interest rates on long term investments are indications of whether the Council would need to borrow in the future, adding that this is not anticipated during the next 5 years.

The Director – Finance and Corporate Services informed the Group that a training session on Treasury Management had been scheduled for 17 January 2023 and would encourage members of the Governance Scrutiny Group to attend.

It was RESOLVED that the Governance Scrutiny Group notes the Capital and Investment Strategy update position at 30^th June 2022.