Item 10 Appendix 1 - Treasury Management Mid-Year Report 2025-2026
West Dunbartonshire Council · 10 December 2025
Back to Audit Committee — 10 December 2025 and its agenda
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Mid-Year Monitoring Report 2025/26 Treasury Management and Prudential Indicators: 1 April 2025 to 30 September 2025 1. Introduction 1.1 The Council’s treasury management activities are regulated by a variety of professional codes, statutes and guidance: The Local Government in Scotland Act 2003 (the Act) provides the powers to borrow and invest and provides controls and limits on this activity. The Act permits Scottish Ministers to set limits either on the Council or nationally on all councils restricting the amount of borrowing which may be undertaken (no restrictions have been made as yet during 2025/26). Statutory Instrument 29 2004, requires the Council to undertake borrowing activity with regard to the CIPFA Prudential Code for Capital Finance in Local Authorities, and therefore to operate the overall treasury function with regard to the CIPFA Code of Practice for Treasury Management in the Public Services; and the treasury activity with regard to the CIPFA Code of Practice for Treasury Management in Local Authorities. Statutory Instrument 123 2016, sets out statutory arrangements for local authority borrowing and lending and the requirement to maintain a loans fund and replaces the statutory arrangements set out in Schedule 3 of the Local Government (Scotland) Act 1975. 1.2 The regulatory framework of treasury management requires the Council to receive a mid-year treasury review, in addition to the forward looking annual treasury strategy and backward looking annual treasury report. This report meets that requirement and also incorporates the needs of the Prudential Code to ensure adequate monitoring of the capital expenditure plans and the Council’s prudential indicators. The Treasury Strategy and Prudential Indicators were previously reported to Council on 26 March 2025. The current position is shown (where appropriate) and revisions to the 2025/26 estimate are provided where required. 1.3 In December 2021, the Chartered Institute of Public Finance and Accountancy, (CIPFA), issued revised Prudential and Treasury Management Codes. These require all local authorities to prepare a Capital Strategy which provides the following: a high-level overview of how capital expenditure, capital financing and treasury management activity contribute to the provision of services an overview of how the associated risk is managed the implications for future financial sustainability The Council’s Capital Strategy was agreed by Council on 5 March 2025. 1.4 This report sets out: key changes to the Council’s capital activity (prudential indicators) Item 10 Appendix 1
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Appendix 1 an economic update for the first part of 2025/26 the actual and proposed treasury management activity (borrowing and investment) the risk approach to treasury management (treasury management indicators). 2. Key Prudential Indicators 2.1 This part of the report updates: the Council’s capital expenditure plans and how these plans are being financed the impact of the changes in the capital expenditure plans on the prudential indicators and the underlying need to borrow compliance with the limits in place for borrowing activity the policy on the statutory repayment of loans fund advances. 2.2 Capital Expenditure – Table A illustrates the current position and revised estimates for capital expenditure for 2025/26. Table A 2025/26 Original Estimate (£,000) Current Position (£,000) 2025/26 Projected Outturn* (£,000) General Services 73,780 14,975 70,325 HRA 70,338 16,959 49,843 Capital Expenditure 144,118 31,934 120,168 Financed by: Capital Grants 55,745 13,937 60,294 Revenue / Other 2,957 0 396 Net Financing Need 85,416 17,997 59,478 2.2.1 The movement in the level of anticipated capital expenditure is mainly due to reprofiling carried out in 2025/26 over the life of the projects. The anticipated spend and resources are reported to Members through budgetary control reports. 2.3 Impact of changes in Capital Expenditure Plans – Table B shows the Capital Financing Requirement (CFR), which is the underlying external need to borrow for a capital purpose while Table C shows the expected debt position over the period. Table B 2025/26 Original Estimate (£,000) 2025/26 Projected Outturn (£,000) Opening CFR (1 April 2025) 947,408 881,494 New Borrowing 73,525 42,342 Long term liabilities repayment in year 0 (1,636)
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Appendix 1 Closing CFR (31 March 2026) 1,020,933 922,200 Movement in CFR 73,525 40,706 Net financing need for the year (Table A) 85,416 59,478 Loan repayments in year - excluding long term liabilities (PPP) (11,891) (17,136) New Borrowing - Movement in CFR (from previous year) 73,525 42,342 Table C 2025/26 Original Estimate (£,000) Current Position (£,000) 2025/26 Projected Outturn (£,000) External Debt Estimated/Actual Debt at 1 April 2025 635,303 771,372 790,778 Maturing Debt (322,687) (120,000) (314,677) Movement in Borrowing New Borrowing - Maturing Debt 322,687 120,000 314,677 New Borrowing – CFR (Table B) 73,525 0 42,342 Debt at 31 March (1) 708,828 771,372 833,120 Long Term Liabilities at 1 April 84,041 82,853 82,853 Long Term Liabilities repayment in year (Table B) 0 (682) (1,636) Long Term Liabilities at 31 March (2) 84,041 82,171 81,217 Actual Debt at 31 March (1) + (2) 792,869 853,543 914,337 CFR from Table B 1,020,933 n/a 922,200 Under/(Over) Borrowing 228,064 n/a 7,863 2.3.1 The external debt figures included within Table C includes both short term and long-term debt. This is due to the current strategy of using short-term borrowing to fund long term capital investment enabling the Council to take advantage of lower interest rates. The reduction in the estimated external debt for 2025/26 is due to a reduction in the net capital financing need for the year. 2.3.2 The capital financing requirement is calculated on a year-end position based on the Council’s balance sheet. The capital financing requirement has reduced from the original estimate due to the forecast level of capital expenditure in 2025/26 being less than budgeted. The Chief Officer - Resources can report that the Council is currently on target to meet the 2025/26 revised estimates for both indicators. 2.3.3 Table C highlights that the borrowing of the Council is forecasting a borrowed position less than the capital financing requirement at 31 March 2026. 2.4 Compliance with the limits in place for borrowing activity – A key control over the treasury activity is a prudential indicator to ensure that, over the medium term, gross borrowing will only be for capital purposes.
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Appendix 1 Gross external borrowing should not, except in the short term, exceed the total of capital financing requirement in the preceding year plus the estimates of any additional capital financing requirement for 2025/26 and next two financial years. This allows some flexibility for limited early borrowing for future years. The Council has approved a policy for borrowing in advance of need which will be adhered to if this proves prudent. The revised indicator is detailed in Table D and is illustrated by comparing the estimated gross debt as at 31 March 2025 with the capital financing requirement as at 31 March 2026. The Chief Officer - Resources reports that no difficulties are envisaged for the current year in complying with this prudential indicator. Table D 2025/26 Original Estimate (£,000) 2025/26 Projected Outturn (£,000) CFR at 31 March 2025 Estimate/Actual (Table B ) 947,408 881,494 Estimated movement in CFR 2025/26 (Table B) 73,525 40,706 2026/27 76,158 64,042 2027/28 48,094 48,094 Anticipated CFR at 31 March 2025 1,145,185 1,034,336 Gross Debt at 31 March 2023 (Table C) 792,869 853,543 2.4.1 The Operational Boundary is detailed in Table E below and is the limit beyond which external debt is not normally expected to exceed. In most cases, this would be a similar figure to the capital financing requirement, but may be lower or higher depending on the levels of actual debt. Table E 2025/26 Original Estimate (£,000) Current Position (£,000) 2025/26 Projected Outturn (£,000) External Debt 793,106 853,543 938,898 2.4.2 The Authorised Limit (detailed in Table F) is a prudential indicator which sets the limit beyond which borrowing is prohibited, and needs to be set and revised by Members. It reflects the level of borrowing which, while not desired, could be afforded in the short term, but is not sustainable in the longer term. It is the expected maximum borrowing need with some headroom for unexpected movements. This is the statutory limit determined under section 3 (1) of the Local Government Act 2003. Table F
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Appendix 1 2025/26 Original Estimate (£,000) Current Position (£,000) 2025/26 Projected Outturn (£,000) External Debt 865,206 853,543 1,024,252 3. Economic Outlook from MUFG Treasury Advisors 3.1 UK With the August rate cut now done, we are comfortable revising our previous forecast for a November rate cut, instead pushing that back to February 2026, on the basis that CPI inflation should have peaked by then and will be on a slow downwards trajectory back to 2% by 2027. Further gradual reductions in Bank Rate to 3.25% are then anticipated but, and it is a big but, only if inflation and employment data are supportive of such cuts. For threats to that central scenario abound. What if wage increases remain stubbornly high and in the region of 5% even as the economy stutters towards a position of flatlining or tepid growth? There are several sectors of the domestic economy, including social care provision, where staff shortages remain - even as unemployment ticks higher (currently 4.7%). And what about the hikes in general taxation likely to arise from the 26th November Budget. There is an estimated £15bn - £25bn second “black hole” to fill, so will there be further borrowing announced by the Chancellor to add to taxation funding? If so, how will gilt markets react to these variables…and will there be additional geo-political factors to also bake in, particularly the Fed’s monetary policy decision in September (currently 85% prospect of a rate cut) and the ongoing tariff policies emanating from the White House. And, of course, how will the ongoing conflicts in the Middle East and between Russia and Ukraine influence matters? Moreover, it looks likely that the Bank of England will reduce the pace of its Quantitative Tightening from an annual £100bn (October 2024 to September 2025) to a range between £60bn and £75bn from October 2025 (Market Participants Survey, August 2025). If that policy move also sees a shift in the gilts being sold to having shorter durations, this should prove supportive of the gilt market generally. Accordingly, our updated central forecast is made with several hefty caveats. We are confident, as we have been for some time, that our forecast for Bank Rate and the 5-year PWLB Certainty Rate is robust. But for the 10-, 25- and 50-years part of the curve, the aforementioned factors may all have a role to play in whether we end up above, close to or below our new forecasts. As it is, we have lifted our starting points and finishing points within the medium to longer dated forecasts. Clients will be aware from presentations at our Strategic Issues webinars that net annual gilt issuance of c£180bn is around a four-fold increase compared to recent annual issuance, and with pension fund and insurance company investment favouring shorter durations, it has been left to transient foreign investors and hedge funds to fill the investor vacuum. Whilst this backdrop prevails, we see no obvious reason why medium to longer gilt yields will not remain at elevated levels, even allowing for a gradual
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Appendix 1 reduction in inflation over the course of the forecast. Consequently, our forecasts at Q3 2028 are 20 basis points higher than previously projected for the 10 years and 50 basis points higher for 25 to 50 years. Our revised PWLB rate forecasts below are based on the Certainty Rate (the standard rate minus 20 bps) which has been accessible to most authorities since 1 November 2012. Please note, the lower Housing Revenue Account (HRA) PWLB rate started on 15 June 2023 for those authorities with an HRA (standard rate minus 60 bps) and is set to prevail until at least the end of March 2026. Hopefully, there will be a further extension to this discounted rate announced in the Budget. 3.2 Scotland Total funding in 2025-26 is just over £60 billion. This is £485 million higher than presented in our May 2025 report. Most of this increase comes from additional funding being carried into 2025-26 from the previous year. There is also additional social security Block Grant Adjustment funding as a result of UK Government changes to Winter Fuel Payment in England and Wales and lower borrowing costs than previously planned. In 2026-27, although the total available funding is similar to our May 2025 report, the split between resource and capital has changed, with resource lower and capital higher. By 2030-31 total funding is projected to be £994 million lower than in our May report with resource funding down £700 million and capital funding down £293 million. This follows the UK Government Spending Review on 11 June 2025, which set Scotland’s block grant resource funding through to 2028-29 and capital funding through to 2029-30. In May 2025, ahead of the UK Government’s Spending Review, we assumed the resource and capital Block Grant would change broadly in line with the Office for Budget Responsibility’s (OBR) March 2025 forecast of growth in overall UK department spending. Making this assumption allowed us to present an overview of the Scottish Government’s funding position. Now that we have the details of the UK Government’s Spending Review, we have updated that position. Over the period from 2024-25 to 2030-31, resource funding is expected to grow by 24 per cent in nominal terms. After adjusting for inflation, the growth is 10 per cent. Devolved social security spending is taking up an increasing share of the resource budget. This reduces funding growth available for all other areas of spending to 6 per cent in real terms over the next five years. In the current year (2025-26), spending on social security is 13.2 per cent of resource funding, and is expected to increase to 15.6 per cent by the end of the forecast period in 2030-31. One of the immediate pressures we discussed in our May 2025 report was public sector pay. The MTFS provides some additional information on public
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Appendix 1 sector pay, noting that it accounts for 55.0 per cent of the entire Scottish resource budget in 2025-26. As we noted in our May 2025 report, pay deals agreed so far in 2025-26 have been above the Scottish Government’s Public Sector Pay Policy of 3 per cent in 2025-26. For example, NHS workers in Scotland on Agenda for Change terms have agreed a pay rise of 4.25 per cent in 2025-26 and 3.75 per cent in 2026-27. We have commented before on the cumulative future impact of current pay awards. A higher current award not only increases the paybill in the current year, but also the cost of every future award because it increases the base to which those future awards are applied. The remaining pay negotiations this year will now be conducted against the background of the Scottish Government’s newly announced workforce reduction policy. Although the Government has retained its policy of no compulsory redundancies, the impact of this change may influence negotiations. 3.3 International update Since March, the US Government has announced a series of tariff policy changes for various countries and products. The baseline projections in this Report are conditioned on the tariff rates implemented as of 29 July, which for the US means an estimated effective tariff rate of around 14%. This is down from the 23% estimate based on trade policies that had been implemented at the time of the May Report, but up from the 2% estimate prior to the policy changes. Tariff rates fell after the May Report as there was a de-escalation of tensions between some countries, particularly the US and China, and trade agreements between others, initially the US and the UK. After that agreement, the estimated effective US tariff rate on the UK fell from 11% estimated at the time of the May Report to 8%–9% now. Military action between Iran and Israel (later joined by the US) in June, led to a rise in spot oil prices, peaking at a little under $80 a barrel, up from a little over $60 at the time of the May Report. Since then, tensions have eased, and spot oil prices have fallen back and averaged a little under $70 a barrel over the 15 working days to 29 July. Oil prices are currently below levels seen at the start of the year reflecting a combination of increased supply from OPEC countries and the expectation of weaker global demand. Liquified natural gas prices similarly increased in June but subsequently fell back. Oil and gas prices have ended the period since May slightly higher than their levels at the time of the previous Report. * Link Group Interest Rate Forecast 11TH August 2025 ** Scottish Fiscal Commission Report 29th May 2025 & revised version June 2025 *** Bank of England Monetary Policy Report – August 2025
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Appendix 1 3.4 Based upon the above information, the Council’s treasury advisor, MUFG, has provided the following interest rate forecast as at August 2025. With no changes made after this date, they have revised the forecast pushing back a rate cut until February 2026. It sets out a view that short, medium and long-dated interest rates will fall back over the next year or two, on the basis that CPI inflation should have peaked by then and will be on a slow downwards trajectory back to 2% by 2027. Further gradual reductions in Bank Rate to 3.25% are then anticipated, but, only if inflation and employment data are supportive of such cuts. Table G: - Source: MUFG Corporate Markets 3.5 Downside risks to current forecasts for UK gilt yields and PWLB rates currently include: Labour and supply shortages prove more enduring and disruptive and will depress economic activity (accepting that in the near-term this is also an upside risk to inflation and, thus, rising gilt yields). The Bank of England acts too quickly, or too far, over the next two years to raise Bank Rate and causes UK economic growth, and increases in inflation, to be weaker than we currently anticipate. UK / EU trade arrangements – if there was a major impact on trade flows and financial services due to complications or lack of co-operation in sorting out significant remaining issues. Geopolitical risks, for example in Ukraine/Russia, China/Taiwan/US, Iran, North Korea and Middle Eastern countries, which could lead to increasing safe-haven flows. 3.6 Upside risks to current forecasts for UK gilt yields and PWLB rates are as The Bank of England is too slow in its pace and strength of increases in Bank Rate and, therefore, allows inflationary pressures to build up too strongly and for a longer period within the UK economy, which then necessitates an even more rapid series of increases in Bank Rate faster than we currently expect. The Government acts too quickly to cut taxes and/or increases expenditure in the light of the cost-of-living squeeze. The pound weakens because of the UK’s growing borrowing requirement resulting in investors pricing in a risk premium for holding UK sovereign debt.
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Appendix 1 Longer term US treasury yields continue to rise strongly and pull gilt yields up even higher than currently forecast. 4. Treasury Management Activity 4.1 This part of the report updates: the Council’s expected borrowing need and details of under/(over) borrowing debt rescheduling and new borrowing debt charges investments 4.2 The Expected Borrowing Need – This was set out in Table C and demonstrates that at 31 August 2025 the Council is projecting an under- borrowed position. It should be noted that due to current economic climate the borrowing rates are significantly different than this time last year, with long term borrowing rates for periods greater than 25 years currently between 6.31% and 6.58%, depending on length of term for borrowing (as at 2 September 2025). This introduces an element of interest rate risk, as longer term borrowing rates may rise further; however, this position is being carefully monitored. 4.3 Debt rescheduling and new borrowing – The Council has undertaken debt rescheduling during 2025/26 of £33.100m (to 30 September 2025). In the year to date naturally maturing debt of £135.000m has been repaid which has been mainly funded by loans from other local authorities. 4.4 Debt Charges – The revised estimate for debt charges for both the General Fund and the HRA is shown in Table H. Table H 2025/26 Original Estimate (£,000) Current Position (£,000) 2025/26 Revised Estimate (£,000) Borrowing 51,893 24,647 49,294 Other Long-Term Liabilities 9,061 4,531 9,061 Total 60,954 29,178 58,355 4.5 Investments – The objectives of the Council’s investment strategy are to ensure the re-payment of the principal and interest of its investments on time with the level of investment return being a secondary objective. Following on from the economic background above, the current investment climate has one over-riding risk which is the risk of default. 4.5.1 The Council held £29.1m of cash investments at 30 September 2025, and the constituent parts of the investment position are detailed in Table I:
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Appendix 1 Table I £000 Country < 1 Year 1–2 Years 2–3 Years Banks UK 4,129 Nil Nil Money Market Fund UK 20,000 Nil Nil Local Authorities UK 5,000 Nil Nil Total UK 29,129 Nil Nil 4.5.2 Table J details the revised budget position for investment income. The original estimate has increased by £0.621m due to ongoing interest rate changes. Table J 2025/26 Original Estimate (£,000) Current Position (£,000) 2025/26 Revised Estimate (£,000) Investment Income 21 321 642 4.5.3 A regulatory development to address risk is the consideration and approval of benchmarks relating to investment security, liquidity and the level of return. Benchmarks are used to assess the level of return and investment performance, however the application of security and liquidity benchmarks are more subjective in nature. Security - The Council’s maximum security risk benchmark for the current portfolio in relation to investment periods of up to one year (when compared to historic default tables) was set at 0.00% and the Chief Officer - Resources can report that there have been no defaults of principal sums invested in the year to date. Creditworthiness - Significant levels of downgrades to Short- and Long- Term credit ratings have not materialised since the crisis in March 2020. Liquidity – The Chief Officer - Resources can report that liquidity arrangements were adequate during the year to date and that the liquidity facilities and benchmarks set by the Council as noted below were maintained: o Bank overdraft - £1.000m o Liquid short term deposits of at least £5.000m available on an overnight basis. Return on Investments – The Chief Officer - Resources can report that the investment return to date averages 4.31%. Table K illustrates how this average return compares with the local benchmarks. Table K Benchmark Benchmark Return Average Return Compound 12 month SONIA* 4.47% 4.31% Council’s Instant Access Account 4.18% 4.31%
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Appendix 1 * SONIA is Sterling Overnight Index Average and has replaced LIBOR & LIBID 5 Key Treasury Management Indicators 5.1 This part of the report updates: actual and estimates of the ratio of financing costs to net revenue stream upper limits on interest rate exposure maturity structure of borrowing total principal sums invested. 5.2 Actual and estimates of the ratio of financing costs to net revenue stream – This indicator (Table L) identifies the trend in the cost of capital against the net revenue stream. Table L 2025/26 Original Estimate 2025/26 Revised Estimate General Fund 10.36%* 9.43% HRA 53.00% 51.01% *The General Fund 2025/26 Estimate has been restated in line with the funding used in the Performance Indicator. 5.3 Upper Limits on Fixed and Variable Rate Exposure – These indicators identify a maximum limit for fixed and variable interest rates based upon the debt position. They were set at 100% and 50% respectively for 2025/26. The Chief Officer – Resources reports that the Council operates within these limits. 5.4 Maturity Structures Of Borrowing – These maximum limits are set to reduce the Council’s exposure to large fixed rate loans (those instruments which carry a fixed interest rate for the duration of the instrument) which are due to naturally mature in any given period as detailed in Table M and show that the Council operates within limits set. Table M Maturity Structure of Fixed Interest Rate Borrowing 2025/26 Original Limits Current Position Under 12 months 50% 35% 12 months to 2 years 50% 4% 2 years to 5 years 50% 29% 5 years to 10 years 50% 6% 10 years to 20 years 50% 2% 20 years to 30 years 50% 4% 30 years to 40 years 50% 3% 40 years to 50 years 100% 14% 50 years to 60 years 100% 3%
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Appendix 1 60 years to 70 years 100% 0% 5.5 Total Principal Funds Invested – These limits are set to reduce the need to temporarily borrow to cover any unexpected expenditure and show limits to be placed on investments with final maturities beyond each year-end. The Council currently invests sums for periods greater than 365 days in Clydebank Property Company and hub West Scotland as detailed in Table N. Table N 2025/26 Original Estimate (£,000) Current Position (£,000) 2025/26 Revised Estimate (£,000) Clydebank Property Company 273 273 273 Hub West Scotland 198 198 198 Total Principal sums invested > 365 days (maximum limit £5m) 471 471 471