Agenda item

This report sets out the monitoring of the Council’s Treasury Management function for the period 1 April 2024 to 31 December 2024. A deficit of £2.2m is being forecast for the 2024/25 financial year as the Council continues to borrow to fund the accumulating deficit on its Dedicated Schools Grant (DSG) as pertaining to the excess special educational needs and disability service (SEND) revenue expenditure over the DSG High Needs block grant. Borrowing is also at higher-than-expected interest rates due to volatility in current debt costs.

This report also presents the Treasury Management Strategy for 2025/26 with the relevant detailed strategy and the associated policies and practices document included as appendices. It should be highlighted the strategy inclusion of an assumption that Council, as part of the 2025/26 Budget setting process, will agree to a £60m SEND capitalisation direction to enable the forecast excess high needs expenditure in 2025/26 to be financed.

The Assistant Chief Financial Officer (CFO) presented a report, a copy of which had been circulated to each Member and a copy of which appears as Appendix 'A' to these Minutes in the Minute Book.

The report set out the monitoring of the Council’s Treasury Management function for the period 1 April 2024 to 31 December 2024. It provided a summary of the current economic climate, including the updated position in respect of Bank of England interest rates and a rise in the gilt yield. The report also included an overview of the estimated performance of the treasury function, an update on the borrowing strategy, investments and compliance with prudential indicators.  It also presented the Treasury Management Strategy for 2025/26 with the relevant detailed strategy and the associated policies and practices document included as appendices.

The Chief Financial Officer provided an update on the latest position regarding the main assumption in the Strategy, around the need to borrow £57.5 million to enable the forecast excess high needs expenditure in 2025/26 to be financed. Since publication of the report, clarification and negotiation was ongoing with Government about whether or not a formal capitalisation directive was now required to fund this amount plus the associated interest rates. The views of CIPFA and the External Auditor would be sought before any conclusions were reached and further clarification would be provided in due course.

A number of points were raised and responded to including:

·        With regard to queries from residents about ethical investment, it was noted that the vast majority of the Council’s investments involved other local authorities. Officers were happy to respond to any concerns. Members were reminded of the requirement for the Council to adopt the principles of security, liquidity and yield.

·        As a follow up, it was noted that some correspondence on ethical investment may relate to the Dorset County Pension Fund. Cllr Beesley, a member of the pension fund committee, offered to provide some previously provided wording explaining the situation, to assist if further queries from residents were received.

·        Members were assured that loans between local authorities were fixed term deposits and not at risk of being called in early.

·        The amount requested in the capitalisation directive was queried as being significantly higher than for other councils. It was explained that in the Council’s case the capitalisation directive was SEND specific and it was always known the funding would be needed. The Government funding formula was wholly inadequate.

·        The pros and cons of a capitalisation directive were acknowledged and discussed. The Government’s recent alternative, that the Council may not need a capitalisation directive to fund the amount, was being considered with caution. However, it was noted that the funding mechanism would ultimately be the Government’s decision.

·        On why the cap on borrowing had been reduced when it now needed to be raised, it was noted that adopting a more controlled, transparent approach with each request reviewed by the Committee was considered to be good governance.

·        Members were advised that the gap between actual capital financing requirement and actual debt limits offered a more prudent approach.

·        Assurance was sought on the Minimum Revenue Provision and the process for overpayments. Paragraph 43 of the Treasury Management Strategy gave details of overpayments to date and how they were used to offset future costs.

It was noted that the table on page 5 of the report should be headed ‘Table 4 – Council Long Term Borrowings as at 31 December 2024’

RESOLVED that:

1) the Audit & Governance Committee notes the reported activity of the Treasury Management function for the period ending 31 December 2024.

RECOMMENDED that Council:

2) Approve the Treasury Management Strategy 2025/26 (Appendix 1)

3) Approve Treasury Management Practices and Policies 2025/26 (Appendix 2)

Voting: For – 6, Against – 0, Abstain – 2