Treasury Activity and Compliance Report 2024/25 - 6 months to 31 March 2025
Perth and Kinross Council · 30 April 2025
Back to Finance and Resources Committee — 30 April 2025 and its agenda
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Our vision is a Perth and Kinross where everyone can live life well, free from poverty and inequality ___________________________________________________________________ Committee or Board: Finance & Resources Committee Date of Meeting: 30 April 2025 Report Title: Treasury Activity and Compliance Report 2024/25 – 6 months to 31 March 2025 Report Number: 25/101 Report Author: John Jennings, Senior Accountant Organisational Lead: Scott Walker, Chief Finance Officer ___________________________________________________________________ 1. Purpose 1.1 The purpose of this Report is to update the Committee on Treasury Activity for the period 1 October 2024 to 31 March 2025 and to report on compliance with the Council’s Treasury Management Policy Statement (TMPS), Investment Strategy and Prudential Indicators. 1.2 This Treasury Activity and Compliance Report covers: Economic Background Treasury Activity Compliance Investment Strategy Compliance & Performance Prudential Indicators Proposed Variation to Limitations to Authority Conclusion Impact Value Assessment Appendices 2. Recommendation(s) It is recommended that the Committee: 2.1 Note the contents of this report. 2.2 Approves the proposed variation to the Limitations to Authority, as detailed in Section 8 of this report and shown at Appendix V.
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3. Economic Background 3.1 The Bank of England’s Monetary Policy Committee (MPC) reduced the UK Bank Base Rate from 5.00% to 4.75% at their meeting in November 2024. This followed a period where inflation had continued to fall and had dropped below the MPC’s 2% target in September 2024. The Bank Base rate was reduced further at the meeting in February 2025 to 4.50% as inflation remained at low levels, despite having increased from its previous low point. During this period, economic growth in the UK was also at very low levels. 3.2 CPI inflation increased from 1.7% in September 2024 and peaked at 3% for January 2025 before dropping to 2.8% for February 2025. The largest contribution to the falls in inflation were from the price of clothing. UK GDP (Gross Domestic Product) grew by 0.1% to December 2024 following a period of no growth in the previous quarter. 3.3 Current forecasts of the Bank Base Rate are that they will continue to fall but at a slower rate than previously anticipated due to rising inflationary expectations and global economic uncertainties. 3.4 Internationally, the Eurozone also experienced growth of 0.1% in the 3 months to 31 December 2024, whilst CPI Inflation eased to 2.3% in February 2025 from the 6-month high of 2.5% in January. Eurozone interest rates were reduced to 2.5% in March 2025. In the US, GDP fluctuated over the period closing at 2.4% at the end of December 2024, whilst inflation increased over the period. The US interest rate was reduced by 0.5% to the range of 4.25% to 4.5% in December 2024. 3.5 The Public Works Loan Board’s (PWLB) certainty fixed interest rates for the 6 months to 31 March 2025, which are based on yields on UK gilts, are shown in the graph at Appendix I. As a result of mixed economic data and market instability, borrowing rates showed continuing volatility over the period, and generally rose over the 6-month period. Whilst the 1-year rate fell slightly over the period, all other rates were higher by the end of the 6-month period. 4. Treasury Activity 4.1 A summary of the Council’s treasury position and transactions is shown at Appendix II. The main activities are detailed below. 4.2 During the period there were 5 new fixed PWLB loans borrowed, summarised as follows: On 20 December 2024 there were two new PWLB fixed Maturity loans borrowed. Both loans were for £10 million, with the first borrowed for a duration of 3 years at 4.91% and the second borrowed for 4 years at 4.88%. On 21 February 205 there a PWLB fixed EIP (Equal Instalments of Principal) loan was borrowed for £30million for 3 years at 4.47% using the PWLB’s HRA discounted interest rate.
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On 11 March 2025 there was a 1 year fixed rate PWLB maturity loan for £5million at 4.82% On 21 March 2025 there was a fixed rate PWLB EIP loan for 2 years at 4.82% for £25million. 4.3 Overall the Council undertook borrowing of £80 million at an average rate of 4.71% and average term of 2.5 years during the 6-month period. 4.4 There was also the repayment of one maturing fixed rate PWLB loan of £7.5 million borrowed at 1.88% for 8 years. Therefore, the Council’s total long- term debt increased by £72.5 million from £642.7 million at an average interest rate of 2.68% to £715.2 million at an average interest rate of 2.91% as at 31 March 2025. 4.5 There were eight short-term market loans borrowed in the period to manage daily cashflows. This position arose as part of the adopted strategy during periods when PWLB rates were high and rising and allowed the Council to defer some longer-term borrowing. Consequently, a total of £37million was borrowed for an average of 46 days at an average rate of 4.99%. There were no such loans outstanding as at 31 March 2025. 4.6 Common Good and Charitable Fund balances held on fixed deposit with the Loans Fund increased to £2.711 million at 31 March 2025 from £2.415 million. The average interest rate reduced from 4.80% to 4.02% at the end of the period. Funds held from associated bodies and organisations decreased from £3.593 million to £2.753 million over the period, in line with their own cash flow requirements, whilst the average rate paid on these funds decreased from 4.47% to 3.82% in line with the rates applicable on individual loans depending on the balance held, and which are linked to the prevailing Bank Base Rate. 4.7 Short term cashflow surpluses are invested in a mixture of fixed term deposits, instant access accounts and money market funds. All investments were made in accordance with the approved Investment Strategy and Permitted Investments Fixed Term Deposits 4.8 Cashflow surpluses which arise during the year, and which are not immediately required, are generally invested in fixed term deposits for periods of up to 12 months, or up to 3 years where forecast cashflow requirements allow. 4.9 There were 12 fixed rate deposits made in the 6 months to 31 March 2025 (totalling £63 million) and at an average interest rate of 5.33% for an average term of 39 days. In comparison to the previous 6 months to the end of September, fixed deposit activity in the current period decreased. The deposits were undertaken where opportunities arose within cashflow projections and were spread amongst other Local Authorities and UK Banks. The majority of the deposits were within the Local Authority market where
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demand for funds grew and therefore interest rates increased, particularly as the year-end approached. The average term of the fixed deposits undertaken in the 6-month period was39 days and was shorter than the previous period (64 days). The fixed deposits undertaken in the current period will generate interest of £354,667 by their maturity. Investments for Daily Cashflow Requirements 4.10 Cashflow surpluses which are required for more immediate needs were invested in the Council’s instant access and Money Market Funds. The investment transactions in the period can be summarised as follows: The daily average amount of such funds decreased slightly from £6.97 million in the previous quarter to £6.11 million at the end of the current period, reflecting the Council’s lower cash balances and borrowing requirements. The average interest rate achieved on these accounts over the period reduced from 5.16% to 4.72%, in line with movements in the Bank Base Rate. Money Market Funds, which operate on instant access terms, were used extensively over the period. The average amount invested decreased from £9.7 million in the previous period to £7.7 million in the current period, whilst the average interest rate decreased from 5.16% to 4.73%. The activity on these accounts reflects the need to keep a sufficient level of funds for more immediate cashflow purposes over the period. Interest generated on these investments over the 6-month period amounted to £390,233. 4.11 The total amount of investments outstanding as at 31 March 2025 was £24.117 million compared to £41.456 million at the end of September 2024. The overall average rate of interest on the investments outstanding increased from 5.09% to 5.50% over this period. This reflects the higher rates available in the Local Authority market towards the financial year-end. 4.12 Total income generated on investments undertaken during the period totals £744,900 (£1.317 million in the 6 months to 30 September 2024). This measure reflects the total return on the investment activity undertaken in the period and is lower in comparison to the previous quarter as fixed term deposits and Money market Fund investments decreased. 4.13 All of the above investment activities are consistent with the Council’s current investment strategy and cashflow requirements. 5. Compliance 5.1 For the period ending 31 March 2025, there were no breaches in compliance with the Council’s approved Treasury Management Policy Statement, Treasury Management Practices (TMP’s) or lending limits as detailed in TMP 4 (Approved Instruments, Methods & Techniques).
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5.2 Appendix III shows the list of approved counterparties, based on the Council’s current lending policy, as at April 2025. 5.3 For the period ending 31 March the average closing cleared bank balance was £21,056.07 in credit. This reflects the application of the Council’s “sweep facility” operated by the bank, with any credit balance in excess of £35,000 being “swept up” overnight to the Council’s instant access account. 6. Investment Strategy Compliance and Performance 6.1 The Treasury Investment Strategy for 2024/25 was approved by the Council at its meeting on 6 March 2024 (report 24/69 refers). 6.2 In the current period, the level of the Council’s investments peaked at £55.529 million on 16 October and reduced to £24.117 million by 31 March 2025. The average daily investment balance over the period was £33.154 million, which reduced from an average of £62.145 million in the previous 6 months and from £102.743 million in the same period of last year. This highlights the steady reduction in investment balances over the last year as funds were applied in financing the approved Capital programme. 6.3 The approved Investment Strategy was applied in full over the period, with liquidity being maintained using instant access accounts and Money Market Funds as detailed in paragraph 4.10 above. There were no other risks identified in the period. 6.4 The Investment Strategy also incorporates investments held by the Common Good Funds. All such investments during the period were with the Council’s Loans Fund. The only Council funds held by external fund managers relate to Council-administered Charitable Trusts and are, therefore, not covered by this Investment Strategy. 6.5 The budgeted income in 2024/25 for Commercial Property investments is £1.856 million whilst the latest projection is £1.924 million. There were no new property investments entered into during the current period. 7. Prudential Indicators 7.1 Prudential Indicators for 2024/25 to 2029/30 were approved by the Council at its meeting on 6 March 2024 (report 24/69 refers) as part of the Annual Treasury & Investment Strategy report. 7.2 The latest estimates of the Prudential Indicators are shown in Appendix IV and are based on the Council’s revised Capital Budget being considered at this Committee meeting. These show that the Council adhered to all Prudential Limits in the period. However, the annual Loan Charges relative to the Net Revenue stream and the Capital Financing (Borrowing) Requirement show an increasing trend, which reflects the latest estimates for the Capital Programme and interest rate forecasts over the period. These will therefore be kept under review.
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8 Amendment to the Daily Limitations to Authority 8.1 As Treasury Management activities are undertaken on a daily basis under delegated powers, the Council has approved the Daily Limitations to Authority that applies to each post involved in Treasury Management activities. However, these limits have not been reviewed for a number of years and now require to be updated. 8.2 The main proposed change to the Daily Limits to Authority is to update each job title to reflect the Council’s new structure, including removing posts that no longer exist in the current structure. 8.3 In addition, the current approved Daily Limits to Authority allow the Senior Account and Treasury Management Officer to arrange temporary borrowing in line with cashflow requirements. To reflect the Council’s current borrowing requirements and borrowing strategy, and for the avoidance of doubt, it is proposed to specifically include that such borrowing can be for periods of up to 1 year. This would allow these officers to undertake borrowing opportunities that may arise in a timeous manner. 8.4 The proposed revised full list of the Daily Limitations to Authority is shown at Appendix V. 9 Conclusions 9.1 The Bank of England’s MPC reduced the Bank Base Rate to 4.75% in November and again to 4.50% in February 2025 due to a period of low inflation and economic growth. However, expectations for future cuts in the Bank Base Rate have reduced due to increasing inflationary pressures and uncertainties in the current economic climate. 9.2 Public Works Loans Board (PWLB) borrowing rates continued to be volatile over the period due to inflationary expectations and mixed economic data. Over the period the rates rose and were higher by 31 March 2025, with only the 1-year rate falling slightly. 9.3 There were five new fixed PWLB loans totalling £80 million. The average rate was 4.71% and duration 2.68 years. There was repayment of one maturing fixed PWLB Loan, totalling £7.5 million at 1.88%. 9.4 Investment activity in the period consisted of a reduced level of fixed term deposits, whilst instant access and Money Market Funds were used to meet day-to-day cashflow requirements, whilst the total level of investments outstanding reduced. 9.5 The Council adhered to its Investment Strategy and policies throughout the period, with no breaches in compliance. The Council’s Prudential Indicators were also adhered to throughout the period.
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10. Impact and Value Assessment Impact and Value Assessment 11. Appendices 11.1 Appendix I – PWLB Fixed Maturity Interest Rates from 1 October 2024 to 31 March 2025 11.2 Appendix II – Summary of the Treasury Position and Transactions from 1 October 2024 to 31 March 2025 11.3 Appendix III – Approved Investment Counterparty List 11.4 Appendix IV – Monitoring of Prudential Indicators – Period ending 31 March 2025 11.5 Appendix V – Proposed Daily Limitations to Authority