Final Report - Treasury Management Annual Report for 2024-25
Renfrewshire Council · 26 June 2025
Back to Council — 26 June 2025 and its agenda
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___________________________________________________________________ To: Council On: 26 June 2025 ___________________________________________________________________ Report by: Director of Finance and Resources ___________________________________________________________________ Heading: Treasury Management Annual Report for 2024/25 ___________________________________________________________________ 1. Summary 1.1 It is a requirement of the Local Government Investments (Scotland) Regulations 2010 that a report outlining the treasury management activity undertaken during the year is presented to Council at the end of each financial year. 1.2 This report meets the requirements of these regulations, as well as the CIPFA Code of Practice on Treasury Management (the Code) and the CIPFA Prudential Code for Capital Finance in Local Authorities (the Prudential Code). 1.3 All aspects of the Treasury Policy Statement were complied with in 2024/25. ___________________________________________________________________ 2. Recommendations 2.1 It is recommended that the Council notes the Treasury Management Annual Report for 2024/25. _________________________________________________________ 3. Review of 2024/25 Treasury Activities 3.1 Treasury Portfolio Position at 31 March 2025 The Council's external borrowing position at the beginning and end of the last financial year was as follows:
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Borrowing Position as at 31 March 2024 Borrowing Position as at 31 March 2025 Change £ m (a) Average Interest Rate £ m (b) Average Interest Rate (a) - (b) Long-term Borrowings Public Work Loans Board (PWLB) Fixed Interest 243.59 3.84% 237.05 3.80% (6.54) Market Loans 46.77 4.70% 46.77 4.70% 0.00 Total Long-term 290.36 3.98% 283.82 3.95% (6.54) Short-term Borrowings Common Good Funds 3.27 4.30% 4.05 4.20% 0.78 Other Partner Bodies 26.51 4.30% 29.80 4.20% 3.29 Total Short-term 29.78 4.30% 33.85 4.20% 4.07 Total Borrowings 320.14 3.99% 317.67 3.96% (2.47) Temporary Investments 97.22 5.51% 23.04 4.45% (74.18) _________________________________________________________ 4. Review of Borrowing and Investment Outturn for 2024/25 4.1 Overall, the Council’s total external borrowings decreased by £2.47m. There was a decrease in borrowing through the PWLB by £6.54m, although this was partially offset by an increase in short-term borrowing within the Council group. 4.2 Temporary investments (cash) held by the Council decreased by £74.18m; this is attributable to several factors, such as higher spending through the capital programme, and Non-Domestic Rates refunds following the retrospective revaluation of some accounts. _________________________________________________________ 5. Review of Borrowing Strategy during 2024/25 5.1 The strategy for 2024/25 was approved by Council on 29 February 2024. Based on the Council’s planned programme of investments and interest rate forecasts for the year, the Council’s borrowing strategy was to firstly use internal cash balances to finance the Capital Investment Programme. 5.2 This strategy was prudent, as borrowing rates have continued to remain high throughout the financial year.
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5.3 Given the evolving economic climate, and the risks inherent in economic forecasts, a cautious approach was taken during the year regarding treasury operations. The Director of Finance and Resources monitored interest rates and adopted a pragmatic strategy based upon the following principles to manage interest rate risks: • if there was considered to be a significant risk of a sharp FALL in long and short-term rates (e.g. due to a marked increase of risks around relapse into recession or of risks of deflation), then long-term borrowings would have been postponed, and potential rescheduling from fixed rate funding into short-term borrowing would have been considered. • if there was considered to be a significant risk of a sharp RISE in long and short-term rates than initially expected (e.g. due to the rate of increase in central bank rates, an increase in world economic activity or a sudden increase in inflationary risk), then the portfolio position would have been re- appraised. Fixed rate funding would have been considered whilst interest rates were lower than forecast over next few years. _________________________________________________________ 6. Review of Investment Strategy and Investment Outturn for 2024/25 6.1 In carrying out investment activities, the Council will have regard to the Local Government Investment (Scotland) Regulations 2010, the accompanying Scottish Government Finance Circular 5/2010 and the CIPFA Treasury Management in the Public Services Code of Practice and Cross-Sectoral Guidance Notes (“the Treasury Management Code”). The Council’s investment priorities are: • the security of capital; and • liquidity of its investments. The Council’s investment policy was outlined in the Council’s Annual Investment Strategy Report 2024/25 which was approved by Council on 29 February 2024. This policy set out the Council’s approach for choosing investment categories and counterparties and is based on credit ratings provided by the three main credit rating agencies, supplemented by additional market data (such as rating outlooks, credit default swaps, bank share prices etc.). 6.2 The expectation for interest rates within the Treasury Management Strategy for 2024/25 was that the Bank Rate had peaked and would gradually reduce throughout the financial year.
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However, as the year progressed, economic factors meant that the reduction in the interest rates did not happen as quickly as anticipated. It is now expected that the interest rate will drop to 3.50% by December 2026. 6.3 During 2024/25, the Council only invested with institutions listed in the Council’s approved Counterparty list and in the permitted investment categories. The investment activity during the year conformed to the approved strategy, and the Council had no liquidity issues. 6.4 The table below shows interest rates achieved by the Council on its temporary investments during the year and, for comparison, the benchmark rate. Temporary investments - internally managed 2023/24 2024/25 Average Investment £182.99m £111.27m Actual rate of return 4.30% 5.07% Benchmark return 4.97% 4.90% 6.5 The actual rate of return was higher than the benchmark figure because the Council had several fixed-term deposits at a higher rate of interest that continued beyond the Bank Rate interest rate reductions. However, it is expected that during 2025/26 there will be little difference between these two figures as the Council utilises more short-term deposit options. 6.6 The current Treasury Strategy remains appropriate to the Council’s ongoing financial, investment and treasury requirements, and supports the Council’s overall financial position, investment priorities and medium-term financial forecasts. While a refreshed strategy was recently approved on 27 February 2025, it is continually being reviewed to ensure, as the economic and political landscape changes and as the Council’s financial strategy develops, that borrowing and investments are managed to accommodate both short to medium-term treasury requirements, and also to ensure that best value is secured from longer term investment in instruments appropriate for this purpose, and consistent with the Council’s risk profile.
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Note: SONIA (Sterling Overnight Index Average) is based on actual transactions and reflects the average of the interest rates that banks pay to borrow sterling overnight from other financial institutions and other institutional investors. _________________________________________________________ 7. Debt Rescheduling 7.1 Whilst it was considered, no debt rescheduling was undertaken during the year, as the differential between PWLB new borrowing rates and premature repayment rates meant that this would not have been economical. _________________________________________________________ 8. Compliance with Treasury Limits 8.1 The Prudential Code for Capital Finance in Local Authorities, which came into force on 1 April 2004, allows greater local flexibility for investment decisions that are informed and supported by a suite of performance indicators. The 2024/25 indicators were approved by Council on 29 February 2024 and an update reported to the Council on 12 December 2024. 8.2 The Council’s overall performance on these indicators provides a firm basis for the monitoring and control of capital investment and borrowing and for determining that it is affordable. Certain headline indicators are sub-divided per recommended best practice into two programmes: Housing and Non- housing. 8.3 The key performance indicators for Treasury are: 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% Interest Rates Temporary Investment Rates Renfrewshire Vs Comparator (Backward looking 7 day SONIA rate) SONIA Renfrewshire
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• An Operational Boundary for the Council’s external borrowing (the upper limit for the aggregate external borrowing needed), and an Authorised Limit for the Council’s external borrowing, being the upper limit of aggregate external borrowing that is affordable and prudent; • A ratio of financing costs to net revenue stream (an affordability measure for debt repayments); and • An upper limit for fixed rate borrowing maturing within the short, medium, and long-term, to ensure that the Council is not exposed to a significant re-financing requirement in the short to medium term. In addition, it is a requirement of the Council's Treasury Policy Statement that the maximum amount of long-term borrowing maturing in any one year will be no more than 15%, and the maximum amount of long-term borrowing maturing in any five-year period will be no more than 45%. The objective of these limits is to ensure that the Council is not exposed to a significant re-financing requirement over a short period when interest rates could be relatively high. 8.4 The main source of the Council’s borrowing is from the Public Works Loan Board (PWLB). The borrowing rates are based on, and are determined by, the yield on UK Government bonds (gilts). The main influences on gilt yields are Bank Rate, inflation expectations, and movements in US treasury yields. 8.5 Gilt yields continued to be volatile during 2024/25. At 31 March 2025, all gilt yields (1-5 years) ranged between 5.02% and 5.17%, while the 10-year and 25-year yields were 5.66% and 6.18%, respectively. 8.6 For PWLB rates, the various margins for borrowing are as follows: - • Standard Rate is gilt plus 100 basis points (G+100bps) • Certainty Rate is gilt plus 80 basis points (G+80bps) • Local Infrastructure Rate is gilt plus 60bps (G+60bps) • HRA Rate is gilt plus 40bps (G+40bps) 8.7 There is likely to be a gradual fall in short-dated gilt yields and PWLB rates over the next two years as the Bank Rate is forecast to gradually fall from 4.50% in March 2025 to around 3.50% in December 2026. 8.8 External Borrowing at the Year-end The Council’s aggregate external debt was contained within both the Operational Boundary and the Authorised Limit. The final outturn position compared to the prudential limits forecast at 12 December 2024 is as follows:
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2023/24 Outturn 2024/25 Borrowing Limits 2024/25 Outturn £m £m £m 357.99 Aggregate external debt of the Council at 31 March 2023 397.68 553 Operational Boundary 598 571 Authorised Limit 624 8.9 Ratio of Financing Costs to Net Revenue Stream This indicator is expressed as a proportion. Both the Housing and Non- housing programme were within the forecasts at 12 December 2024. 2023/24 Outturn 2024/25 Estimated Ratio 2024/25 Outturn % % % 27.68 Housing 28.59 22.70 3.13 Non-Housing 3.47 2.88 8.10 Fixed Rate Borrowing Maturing within the Short, Medium and Long-term This indicator is expressed as a proportion of the total debt of the Council. The maturity profile of the Council’s external debt is well within the approved limits. The outturn position, compared to the mid-year approved limits, is as follows: 2023/24 Outturn 2024/25 Approved Upper Limits 2024/25 Outturn % % % Short-term 1.72 Under 12 months 15 1.76 Medium term 1.72 12 months and within 24 months 15 0.00 0.00 24 months and within 5 years 45 0.00 0.01 5 years and within 10 years 50 6.52 Long-term 96.55 10 years and above 100 91.72 8.11 Long-Term Borrowing Maturity Profile During the financial year, the Council operated within the treasury limits set out in the Council’s Treasury Policy Statement and Treasury Management Strategy Statement. The Council's debt maturity profile at 31 March 2025 was within these limits.
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The table below shows the maturity profile of the Council’s long-term borrowing. The solid black line shows the debt maturing, and therefore requiring to be replaced, during each year up to 2072. The lighter broken line shows the debt maturing in the prospective five-year period for each year up to 2072. All years are below 40% and well within our policy limits. 0% 10% 20% 30% 40% 50% 2025/2026 2027/2028 2029/2030 2031/2032 2033/2034 2035/2036 2037/2038 2039/2040 2041/2042 2043/2044 2045/2046 2047/2048 2049/2050 2051/2052 2053/2054 2055/2056 2057/2058 2059/2060 2061/2062 2063/2064 2065/2066 2067/2068 2069/2070 Maturity Profile - Spread of Debt From 2025/26 through to 2071/72 1 Year % of total limit 5 Year % of total limit
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___________________________________________________________________ Implications of the Report 1. Financial As described in the report; the Treasury Management Strategy Statement, treasury management and prudential indicators all assist in providing assurance that the Council’s treasury management activities and longer term spending plans are affordable, prudent, and sustainable. 2. HR & Organisational Development There are no direct implications arising from the recommendations in this report. 3. Community/Council Planning Community Plan Our Renfrewshire is thriving The Council’s revenue and capital spend ensures that its facilities are fit for purpose and safe for the community, to maximise accessibility. Our Renfrewshire is well Our Renfrewshire is fair Our Renfrewshire is safe Council Plan Reshaping our place, our economy, and our future The Council’s revenue and capital spend ensures that its facilities are fit for purpose and safe for the community, to maximise accessibility. Building strong, safe, and resilient communities Tackling inequality, ensuring opportunities for all Creating a sustainable Renfrewshire for all to enjoy Ongoing revenue and capital budget monitoring is a tool to enable good financial management so that the Council has resources now and in the future for continued service delivery. Working together to improve outcomes 4. Legal There are no direct implications arising from the recommendations in this report. 5. Property/Assets The capital expenditure noted in this report will result in lifecycle maintenance improvements to existing properties and replacement of ICT, infrastructure, and plant and equipment. 6. Information Technology There are no direct implications arising from the recommendations in this report.
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7. Equality & Human Rights While new areas of spend may impact on particular groups, any such impact would be assessed prior to the spend being incurred, therefore there are no direct implications arising from the recommendations in this report. 8. Health & Safety There are no direct implications arising from the recommendations in this report. 9. Procurement There are no direct implications arising from the recommendations in this report. 10. Risk The report outlines a range of measures taken during the course of 2024/25 to manage treasury risks and the risks associated with investment regulations in respect of the borrowing and investment activity of the Council, along with measures to manage these risks. 11. Privacy Impact There are no direct implications arising from the recommendations in this report. 12. Children’s Rights There are no direct implications arising from the recommendations in this report. 13. Climate Change There are no direct implications arising from the recommendations in this report. 14. Cosla Policy Position - N/A _________________________________________________________ List of Background Papers: Non-Housing Capital Investment Programme, Prudential Framework and Treasury Management Strategy, and Capital Strategy 2024/25 – 2028/29, Council, 29 March 2024. Treasury Management and Prudential Indicators Mid-Year Review 2024/25, Council 12 December 2024 ___________________________________________________________________ Author: Christine McCourt, Head of Finance and Procurement