Agenda item

Report of the Treasurer

Bev Bull, Head of Finance and Treasurer, presented the report providing an update on treasury management activity during the 2023/24 financial year, and highlighted the following points:

(a)  The Fire Authority is required by regulations issued under the Local Government Act 2003 to produce an annual treasury management review of activities and the actual prudential and treasury indicators for 2023/24. The Chartered Institute of Public Finance and Accountancy’s (CIPFA) Code of Practice on Treasury Management (revised in 2021) was adopted by the Fire Authority on 9 April 2010.

(b)  Against a backdrop of stubborn inflationary pressures and wars in Ukraine and the Middle East, UK interest rates continued to be volatile right across the yield curve during 2023/24. They have also remained stubbornly high, with the Bank of England Base Rate beginning the year at 4.25% and ending at 5.25%.

(c)  Inflation has eased throughout 2023/24. The 12-month Consumer Price Index (CPI) rate had fallen to 2.3% by April 2024, largely due to reductions in the gas and electricity price caps. The Bank of England’s communications suggest that the Monetary Policy Committee (MPC) is gaining confidence that inflation will fall sustainably back to the 2.0% target. However, although the MPC noted that “the restrictive stance of monetary policy is weighing on activity in the real economy, and is leading to a looser labour market and is bearing down on inflationary pressures”, conversely it also noted that key indicators of inflation persistence remain elevated and that policy will be “restrictive for sufficiently long” and “restrictive for an extended period”. Core CPI (excluding energy, food, alcohol and tobacco) was 3.9% in April.

(d)  Actual capital expenditure forms one of the required prudential indicators. The table below shows actual capital expenditure in the year and how this was financed:

(e)  The Authority’s 2023/24 Minimum Revenue Provision Policy was approved as part of the Treasury Management Strategy Report for 2023/24 on 24/02/23. The Capital Financing Requirement for the year is shown below and represents a key prudential indicator:

(f)  The difference between the 31/03/24 estimated and actual figures for unfunded capital expenditure arose for two reasons: a significant increase in actual levels of capital expenditure due to slippage of the capital programme, and a delay in securing a capital receipt (budgeted at £3m) for the sale of the former headquarters due to the original offer falling through.

(g)  The Treasury Management Strategy approved by the Authority set out the policies for managing investments and for giving priority to the security and liquidity of those investments. The risk appetite of this Authority is low in order to give priority to security of its investments. Accordingly, the following types of low risk specified investments may be made:

·  Deposits with the Debt Management Agency (Government);

·  Term deposits with Banks and Building Societies;

·  Term Deposits with English and Welsh local authority bodies;

·  Call deposits with Banks and Building Societies;

·  Triple-A rated Money Market Funds;

·  UK Treasury Bills;

·  Certificates of Deposit.

During the year, investments were made with banks or building societies (term deposits or call deposits) and a Police Authority.

(h)  At 31 March 2024, the Authority held £1.5m of principal as short-term investments on the Balance Sheet and £5.0m of principal as shorter dated “cash equivalent” investments.

(i)  The average 90 days backward looking Sterling Overnight Index Average (SONIA) compounded benchmark rate for the year was 4.74%. The SONIA is a risk-free sterling interest rate that is identified as the investment yield benchmark in the Treasury Management Strategy. The Authority’s investments earned an average rate of 4.74% during the year. This is in line with the SONIA benchmark. This resulted in investment income of £637k, against a budget of £374k.

(j)  At 31 March 2024, the value of the Authority’s useable reserves totalled £11.072m. The balance sheet at the same date shows that the Authority held short-term investments totalling £1.745m and £7.394m in cash and cash equivalents. This means that £1.9m of cash balances were being used to support capital expenditure. The Treasury Management Strategy recognises that whilst the use of cash balances in this way (known as “internal borrowing”) can be prudent, it is not without risk. This is because internal borrowing is effectively variable rate debt. The Authority therefore has a local indicator that limits the level of internal borrowing to 20% of the underlying borrowing requirement. At 31 March 2024, internal borrowing was 5.4% of the underlying borrowing requirement.

Members commended the work of the team to protect the reserves and the achievement in the rate of return.

Resolved to note the update on treasury management activity during the 2023/24 financial year as required under the Local Government Act 2003.