Agenda item

Report of the Director – Finance and Corporate Services

The Service Manager – Finance presented the Capital and Investment Strategy Outturn report, which summarised the capital and investment activities during the financial year 2023/24, against the Council’s Capital and Investment Strategy 2023/24.

The Service Manager – Finance referred to Table 1 in the report, which related to capital expenditure, with investments higher than expected, which was mainly due to slippage in the Capital Programme of approximately £5.7m.  Table 2 in the report detailed that all capital expenditure in the year was financed, which has ensured no external borrowing, and that had resulted in the set limits being met. Table 3 highlighted that overall the Capital Financing Requirement (CRF) had reduced to £9,889m. Table 4 showed a negative number for the ratio of financing costs to net revenue streams, due to the Council’s investment income exceeding its MRP charge, with Tables 6 and 7 showing that the limits for investments had not been breached throughout the year. Table 8 provided a snapshot as of 31 March 2024, of investments held at that point of around £71m. Paragraph 4.22 of the report detailed income received this year, which had increased to £1,887m due to higher balances invested together with higher than anticipated interest rates. Reference was made to the diversified portfolios, which had declined over £1m when Covid started, so a reserve had been earmarked to cover the effect of that and the Group was advised that this year the funds increased by £272k, albeit they were still £0.96m less than the original investment.

The Group noted that overall, for Treasury Investments, inflation was not reducing as quickly as anticipated, which therefore had resulted in slightly higher interest rates, and there was considerable economic instability. Table 12 showed the Council’s Non-Treasury Asset Investments and the returns, which were performing very well, with Charts 2 and 3 showing that the Council’s diverse portfolio to spread risk. It was noted that there was a risk of over reliance in investment income against the Council’s total income, so a 30% limit was set, and Table 13 highlighted that it was at 18.5%.  The Service Manager – Finance concluded by referring to the importance of training both for staff and members of the Group to ensure that appropriate scrutiny took place. An assessment was currently taking place and the findings would be brought to the Group for consideration.

Councillor Gowland sought clarification on the loss of investment due to Covid and the use of a reserve, and the Service Manager – Finance confirmed that money had not been lost, it was rather a paper reduction in value and the reserve was in place in case the Council wished to redeem the investment, at a time when the value was lower than when the Council had originally paid for it. The Director – Finance and Corporate Services advised that these were long term investments and it was anticipated that over time they would increase again, and if that was likely, the £1m would be returned to the budget.

Councillor Butler referred to Table 8 and questioned why some of the investments were so low and due to administration fees, were those investments worthwhile. The Service Manager – Finance advised that small sums were used to keep some accounts open, and there were also limits on investments in set institutions, and therefore monies had to be spread. If there were any charges incurred, money would not be kept in the accounts.

Councillor Regan applauded the Finance Team for managing the budget during such difficult economic times. He referred to the £5m lent to other councils, queried the differing interest rates and asked if a risk evaluation had been undertaken and where the Council sat if those councils collapsed. The Service Manager – Finance advised that the differing rates might be different due to the time that the investment was made and as the Government protected local authorities from going bankrupt, there was not the same risk as with other institutions and it was deemed a safe investment, although due diligence was still undertaken before investments were made.

Councillor Birch referred back to the paper loss and the £1m reserve to mitigate that and questioned how that figure had been reached and the Service Manager – Finance confirmed that the general advice from treasury advisers was that there should be a reserve to mitigate the potential loss, with the decision made at Full Council. The Director – Finance and Corporate Services advised that when the Council made investments, the Group agreed the Treasury Management Strategy, which then gave officers the parameters to operate, and any investments made were within those parameters. As part of the budgetary process, £1m was put aside as a reserve, and at the last meeting, the auditors agreed that this was a prudent plan.

Councillor Birch sought clarification that the investments were expected to become profitable again, and in that case the £1m would be returned to the budget and the Director – Finance and Corporate Services referred to the current difficult economic climate and stated that although the expectation was that things would improve it was difficult to know when.

It was RESOLVED that the 2023/24 outturn position be agreed.