16 November 2020


Treasury Management Mid-Year Review 2020/21


Final Decision-Maker

Audit, Governance & Standards Committee

Lead Head of Service

Ellie Dunnet – Head of Finance

Lead Officer and Report Author

John Owen – Finance Manager



Wards affected



Executive Summary

This report sets out the activities of the Treasury Management Function for the first

6 months of the 2020/21 financial year in accordance with CIPFA’s Code of Practice on Treasury Management in Local Authorities.


Purpose of Report


This report requires noting from the Committee.



This report makes the following recommendations to this Committee:

1.   That the position of the Treasury Management Strategy as at 30 September 2020 be noted;

2.   No amendments to the current procedures are necessary as a result of the review of activities in 2020/21.







Audit, Governance & Standards Committee

16 November 2020



Treasury Management Mid-Year Review 2020/21








Impact on Corporate Priorities

The Treasury Management Function ensures the safeguarding of Council finances and the liquidity of funds when liabilities become due to support the strategic plan objectives.

Head of Finance

Cross Cutting Objectives

The report recommendations support the achievements of all the cross cutting objectives in the way stated above.


Head of Finance

Risk Management

Covered in the risk section of this report.

Head of Finance


This report relates to the financial activities of the council in respect of treasury management and specific financial implications are therefore detailed within the body of the report.

Section 151 Officer & Finance Team




Head of Finance


Under Section 151 of the Local Government Act 1972 (LGA 1972) the Section 151 Officer has statutory duties in relation to the financial administration and stewardship of the authority, including securing effective arrangements for treasury management.


The legal implications are detailed within the body of the report which is compliant with statutory and legal regulations such as the CIPFA Code of Practice on Treasury Management in Local Authorities.

In considering the impact of Covid-19 on the Council’s financial position in 2020/21, consideration should be given to the Council’s legal duty to set a balanced budget.


Appropriate remedial action should be taken if at any time it appears likely that expenditure will exceed available resources.  The S151 Officer has a personal duty under Section 114(3) of the Local Government Finance Act 1988 to report to the Council if it appears that the set budget will be exceeded. Having received a S114 report, members are obliged to take all reasonable practical measures to bring the budget back into balance.  


Legal Team

Privacy and Data Protection



Policy and Information Team


The recommendations do not propose a change in service therefore will not require an equalities impact assessment.

Equalities and Corporate Policy Officer

Public Health




Public Health Officer

Crime and Disorder


Head of Finance



Head of Finance & Section 151 Officer










2.1        The Council has adopted the Chartered Institute of Public Finance and Accountancy’s Treasury Management in the Public Services: Code of Practice (the CIPFA Code) which requires the Authority to approve treasury management semi-annual and annual reports.

2.2        The Authority’s Treasury Management Strategy for 2020/21 was approved at Council on 26th February 2020. The Authority has invested substantial sums of money and is therefore exposed to financial risks including the loss of invested funds and the revenue effect of changing interest rates.  The successful identification, monitoring and control of risk is therefore central to the Authority’s treasury management strategy.


2.3        This report has been written in accordance with the requirements of the Chartered Institute of Public Finance and Accountancy’s (CIPFA) Code of Practice on Treasury Management (revised 2017).


The primary requirements of the Code are as follows:


·         Creation and maintenance of a Treasury Management Policy Statement which sets out the policies and objectives of the Council’s treasury management activities.

·         Creation and maintenance of Treasury Management Practices which set out the manner in which the Council will seek to achieve those policies and objectives.

·         Receipt by the full council of an annual Treasury Management Strategy Statement - including the Annual Investment Strategy and Minimum Revenue Provision Policy - for the year ahead, a Mid-year Review Report and an Annual Report, (stewardship report), covering activities during the previous year.

·         Delegation by the Council of responsibilities for implementing and monitoring treasury management policies and practices and for the execution and administration of treasury management decisions.

·         Delegation by the Council of the role of scrutiny of treasury management strategy and policies to a specific named body.  For this Council the delegated body is the Audit, Governance and Standards Committee.


2.4        This mid-year report has been prepared in compliance with CIPFA’s Code of Practice on Treasury Management, and covers the following:


·         An economic update for the first half of the 2020/21 financial year;

·         A review of the Treasury Management Strategy Statement and Annual Investment Strategy;

·         A review of the Council’s investment portfolio for 2020/21;

·         A review of the Council’s borrowing strategy for 2020/21;

·         A review of compliance with Treasury and Prudential Limits for 2020/21.


2.5        Economics and interest rates


2.5.1   The Council’s treasury advisors, Link Asset Services, have provided the Council with the following economic update for the first 6 months of 2020/21 (information is correct as of 07/10/2020).

·      The Bank of England’s Monetary Policy Committee kept Bank Rate unchanged on 6th August. It also kept unchanged the level of quantitative easing at £745bn.

·      Use of negative interest rates is unlikely, at least for the next six months or so. The Monetary Policy Committee suggested that while negative rates can work in some circumstances, it would be “less effective as a tool to stimulate the economy” at this time when banks are worried about future loan losses. It also has other instruments available, including Quantitative Easing (QE) and the use of forward guidance.

·      The pace of recovery is not expected to be in the form of a rapid V shape, but a more elongated and prolonged one after a sharp recovery in June through to August which left the economy 11.7% smaller than in February. The last three months of 2020 are now likely to show no growth as consumers will probably remain cautious in spending and uncertain over the outcome of the UK/EU trade negotiations concluding at the end of the year. If the Bank felt it did need to provide further support to recovery, then it is likely that the tool of choice would be more QE.

·      The Financial Policy Committee (FPC) report on 6th August revised down their expected credit losses for the banking sector to “somewhat less than £80bn”. It stated that in its assessment “banks have buffers of capital more than sufficient to absorb the losses that are likely to arise under the MPC’s central projection”. The FPC stated that for real stress in the sector, the economic output would need to be twice as bad as the MPC’s projection, with unemployment rising to above 15%.

·      The Council’s treasury advisor, Link Group, provided the following forecasts on 11th August 2020 (PWLB rates are certainty rates, gilt yields plus 180bps):

·      The coronavirus outbreak has done huge economic damage to the UK and economies around the world. After the Bank of England took emergency action in March to cut Bank Rate to first 0.25%, and then to 0.10%, it left Bank Rate unchanged at its meeting on 6th August (and the subsequent September meeting), although some forecasters had suggested that a cut into negative territory could happen. However, the Governor of the Bank of England has made it clear that he currently thinks that such a move would do more damage than good and that more quantitative easing is the favoured tool if further action becomes necessary. As shown in the forecast table above, no increase in Bank Rate is expected within the forecast horizon ending on 31st March 2023 as economic recovery is expected to be only gradual and, therefore, prolonged.

·      HM Treasury imposed two changes of margins over gilt yields for PWLB rates in 2019-20 without any prior warning. The first took place on 9th October 2019, adding an additional 1% margin over gilts to all PWLB period rates.  That increase was then at least partially reversed for some forms of borrowing on 11th March 2020, but not for mainstream General Fund capital schemes, at the same time as the Government announced in the Budget a programme of increased infrastructure expenditure. It also announced that there would be a consultation with local authorities on possibly further amending these margins; this was to end on 4th June, but that date was subsequently put back to 31st July. It is clear HM Treasury will no longer allow local authorities to borrow money from the PWLB to purchase commercial property if the aim is solely to generate an income stream (assets for yield).

2.6        Treasury Management Strategy Statement and Annual Investment Strategy Update

2.6.1   The Treasury Management Strategy Statement, (TMSS), for 2020/21 was approved by this Council on 26th February 2020 in accordance with the CIPFA Treasury Management Code of Practice, it sets out the Council’s investment priorities as being:

·      Security of capital

·      Liquidity

·      Yield

2.6.2   The TMSS stated that the Council are to keep investments short term and cash balances would be used to finance the capital programme in the short term, due to low investment returns and high counterparty risk in the current economic climate.  

2.7        Investment Portfolio

2.7.1   The Council held £10.43m of investments as of 30th September 2020 (£11.025m at the start of the year) and the investment portfolio yield for the first 6 months of the year is 0.33%.  A full list of investments can be found in Appendix A.

2.7.2   The Council has kept investments short term, as agreed in the TMSS and cash balances would be used to finance the capital programme, in the short term, due to low investment returns and high counterparty risk in the current economic climate.  All investments are kept within money market funds and notice accounts which can be called on immediately or with a short notice period.

2.8        Debt Portfolio

2.8.1   The Council’s capital financing requirement (CFR) for 2020/21 is £50.2m.  The CFR denotes the Council’s underlying need to borrow for capital purposes.  If the CFR is positive the Council may borrow from the PWLB or the market (external borrowing) or from internal balances on a temporary basis (internal borrowing).  In practice, owing to slippage in the capital programme, it is unlikely that borrowing on this scale will be required in practice.

2.8.2   The Council has short term external borrowing of £9m from other local authorities.  A list of these can also be found in Appendix A.

2.8.3   The Council’s borrowing has been kept under review through the first half of the year to see if it is prudent to lock in long term borrowing to spread the risk of refinancing and to lock in a long term low rate.  With PWLB possibly looking to drop borrowing rates for non-commercial activities it has been decided to wait for the results of HM Treasury’s consultation review prior to committing to anything long term.  Given current interest rate forecasts, the risk of losing the opportunity to borrow at low rates by waiting appears to be low.

2.9        Prudential and Treasury Indicators

2.9.1   It is a statutory duty for the Council to determine and keep under review ‘Affordable Borrowing Limits.’ During the first six months of financial year 2020/21, the Council has operated within the prudential and treasury indicators set out in the Treasury Management Strategy Statement and in compliance with the Council’s Treasury Management Practices.  The prudential and treasury indicators can be found in Appendix B

2.9.2   The Director of Finance & Business Improvement confirms no indicator has been breached in the first half of 2020/21.





3.1        The Audit, Governance and Standard Committee agrees that no amendments to the current procedures are necessary as a result of a review of activities of the first 6 months of 2020/21.

3.2        The Audit, Governance and Standard Committee proposes changes to the current procedures as the result of a review of activities with the first 6 months of 2020/21.




4.1        The Audit, Governance and Standard Committee agrees that no amendments to the current procedures are necessary as a result of a review of activities of the first 6 months of 2020/21 as there are no justifications to make any changes.



5.           RISK


5.1       Risks are highlighted for the treasury management function within the Treasury Management Strategy Statement 2019/20 report.  This report is purely for information purposes and has no risk management implications.




6.1        None





7.1        If Audit, Governance and Standards Committee agrees that no change in current procedures with Treasury management will be made, then there will be no further action.







8.1        The following documents are to be published with this report and form part of the report:


Appendix A - Investments-Borrowing 30th September 2020

Appendix B - Prudential and Treasury Indicators





9.1        None