Agenda item

To receive a report by David Wilkes, Service Manager Treasury and Investment.

Cllr Clifford introduced the report by explaining that this was a half term report, and it was interesting to see some of the balancing act that goes on in treasury management. He informed that interest rates had been falling but not as fast as predicted which had positive and negative impacts for Dorset Council. A reduced interest rate helped fund the Council’s capital program but at the same time it meant lower returns on cash investments.

The Service Manager Treasury and Investments introduced the report. Treasury management activity had been heavily impacted by the wider world. The biggest external factors were interest rates. Inflation had come back towards the Bank of England’s target this financial year and subsequently there had been cuts to the base rate but not as many cuts as were anticipated this time last year. The bank rate is very important for treasury activities because the returns that the Council receives on its cash balances tend to follow this closely. Shorter term borrowing rates were closely linked to the bank rate as well. The interest rates on longer term borrowing were not as closely linked to the bank rate but were more closely aligned to the interest rates that central government could borrow at which had also held up higher than expected.

He covered Section 4 of the report, the local context- Table 1 Balance Sheet Summary and gave an explanation to the numbers and how these interlinked with each other. The Capital Financing Requirement (CFR) was expected to increase from just under £390 million at the beginning of the year to £450 million by the end of the financial year. An increase of £60 million which was £30 million more than the expected increase when the budget was agreed in February 2024 due to slippage in the delivery of the Capital Program being more than predicted when the budget was agreed. External borrowing was forecast to be £325 million at year end compared to £225 million at the beginning of the year, an increase of £100 million over the year. When the budget was agreed external borrowing was expected to be £313 million at year end, therefore officers are now forecasting an increase of £12 million since the budget was agreed. It was expected that there would be less reserves by the end of the financial year than the Council had at the start of the financial year which meant there were less ‘balance sheet resources’ available to offset external borrowing with internal borrowing. He went through Section 6 of the report- Treasury Performance. There was improvement in the figures as for local authority’s cash flows were quite heavily weighted to the first 6-9 months of the year which meant the Council had benefitted from higher than expected returns on its investment balances.

In response to questions about the Capital Program and slippage, the Executive Director Corporate Development explained that progress against the Capital Program was reported on a quarterly basis to Cabinet and monitored monthly by officers.

Noted.