Agenda item

Report of the Director - Finance and Corporate Services

The Chairman introduced the Capital and Investment Strategy item and noted that Cipfa recommendations had changed to recommend that this information be reported quarterly, with this being the mid-term report.

The Service Manager for Finance presented the Capital and Investment strategy Mid-year Report 2022/23, which summarised the Council’s capital and investment activities for the period 1 April to 30 September 2022. She confirmed that the previous update had been presented to Members of the Group at the meeting on 1 November 2022.

In relation to the economic forecast, the Service Manager for Finance said that inflation was currently at 10.1% and forecast to reach 12% in the next few months. Interest rates were currently at 3% and forecast to peak at 5.2% by March 2023.

In relation to investment income, the Service Manager for Finance said that whilst the Council had budgeted to receive £673k in investment income in Q1, this had been revised to become £1.3m due to increases in interest receipts. She said that the Council had received an average interest rate of 2.16% across its diversified investment portfolio and that the rate received depended on when the investment was made, with investments made earlier in the year earning lower interest. Short-term investments were currently preferred, to benefit from the increasing interest rates. She explained that the Council had a greater spread of investment durations now than this time last year when there had been a greater need to hold more cash for liquidity purposes. She noted that £40.8m of investments related to funds held in relation to Section 106 and CIL Agreements. The Service Manager for Finance added that the Council was showing good average interest rates compared to Sterling Overnight Index Average (SONIA) rates for investments of longer duration.

The Service Manager for Finance said that as there was currently a deficit on the capital value of the Council’s diversified funds and so the Council had earmarked funds from this year and last year’s efficiencies savings as mitigation.

The Service Manager for Finance explained that as the Council did not eternally borrow, borrowing liability limits were of less relevance, noting that the Council’s liability benchmark currently stood at $41m. She, said, however, that the Council’s internal need to borrow had increased slightly due to a delay in capital receipts from Hollygate Lane.

In relation to prudential indicators, the Service Manager for Finance said that there was no change from Q1 and that capital underspend was projected to be circa £6m, primarily due to Support from Registered Housing Providers, Bingham Hub and re-profiling of expenditure on other operational land and buildings. The financing costs to net revenue stream showed an improved position due to higher investment returns and higher interest rates. She added that the expected investment position was higher due to rephasing of the capital programme and additional S106 monies.

In relation to Capital Financing Requirement (CFR), the Service Manager Finance said that the position would be greater than predicted due to the delayed receipt from disposal of land at Hollygate Lane but that this would correct itself when the receipt was received.

In relation to commercial investment, the Service Manager Finance explained that the Council had set a ratio target to not exceed 30% of income and that this currently stood at 16.3%.

The Service Manager Finance highlighted the Treasury Management training scheduled for Wednesday, 17 January 2023.

In conclusion, the Service Manager for Finance said that the economy was fraught with difficulty, with a real risk of a recession and with inflationary pressures and rising interest rates. Whilst rising interest rates would have a positive effect on income returns on investments, uncertainty in the economy would have a negative impact on the capital value of some of the Council’s investments, however, as the Council held them as long-term investments it currently had no plans on withdrawing from them. She said that changes to the accounting codes would restrict what local authorities could do, along with the threat of borrowing caps, and confirmed that Officers would continue to report back on any changes to the Group.

Members of the Group referred to CIL and S106 monies held by the Council. The Service Manager Finance explained that the funds held by the Council at any given time depended on the receipts and applications received by the Council. She said that the Council had policies and procedures in place for S106 and CIL monies and that S106 funds were linked to the planning process and had special agreements and criteria in place as to what they could be spent on and when. She noted that both CIL and S106 funds were ringfenced. She explained that in general monies were for external organisations to spend, such as the County Council, and said the Council held the monies, which earned interest, until it received applications. The Group thought it important that the monies be released in a timely fashion to deliver projects in the community, whilst accepting that this was not always in the Council’s control.

The Service Manager Finance agreed to provide further information and clarification about S106 and CIL monies and processes to the Group.

Councillor D Wheeler asked about the Council’s rental property income and whether there was any to risk given the current economic climate. The Service Manager Finance said that the Council was not currently experiencing any impact on its rental property income but would raise it as a concern should the position negatively change.

Councillor Gowland asked about the underspend on registered housing providers and the Service Manager Finance confirmed that Officers were actively looking for schemes to utilise the funding.

The Chairman referred to the Council holding £26m in MMF/Call accounts and asked about the net impact of the lag in rates. The Service Manager Finance said that the Council did not make an assessment of lag on interest rates as due to cash flow requirements does not always have any alternative but to hold the funds in cash and so was unable to move them to achieve a higher interest regardless.

The Chairman referred to the Council’s internal borrowing increasing. The Service Manager for Finance explained that the Council had planned on using some capital receipts to fund its programme for the year, one of which was Hollygate Lane, however as this receipt had been delayed until 2023/24 the Council would need to borrow internally to cover costs.

The Chairman concluded that the Group had been provided with assurance that the Council’s trajectory was positive and that it’s investment and interest income balances were higher and that management of funds and thresholds for balances were being adhered to. The Chairman thanked Officers for their work in managing the Council’s successful performance.

It was RESOLVED that the Governance Scrutiny Group noted the Capital and Investment Strategy up-date position as of 30 September 2022.