Item 09 Appendix 1
West Dunbartonshire Council · 2 September 2026
Back to Audit Committee — 2 September 2026 and its agenda
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Appendix 1 Annual Report 2025/26 Treasury Management and Actual Prudential Indicators 1. Introduction 1.1 The Council’s treasury management activities are regulated by a variety of professional codes and statutes and guidance: • The Local Government in Scotland Act 2003 (the Act), provides the statutory framework for local authority borrowing and investment activity, including the requirement for authorities to determine and review the amount they can afford to borrow. The Act also permits Scottish Ministers to impose borrowing limits either on the Council or nationally on all local authorities restricting the amount of borrowing which may be undertaken (although no restrictions were made in 2025/26). • The Council undertakes its treasury management and capital finance activities with regard to the CIPFA Prudential Code for Capital Finance in Local Authorities and the CIPFA Code of Practice for Treasury Management in the Public Services: Code of Practice and Cross-Sectoral guidance Notes. • The Local Authority (Capital Finance and Accounting) (Scotland) Regulations 2016, as amended, require the Council to document its policy on the prudent repayment of loans fund advances, having regard to statutory guidance issued by Scottish Ministers. 1.2 The Council has adopted the CIPFA Treasury Management in the Public Services: Code of Practice and Cross-Sectoral Guidance Notes and the CIPFA Prudential Code for Capital Finance in Local Authorities. It operates its treasury management service and capital programme in accordance with these Codes and the statutory and regulatory requirements set out above. These requirements provide that the prime objective of treasury management activity is the effective management of risk, and that borrowing activity is undertaken on a prudent, affordable and sustainable basis. 1.3 During 2025/26 the minimum reporting requirements were that the Council should receive the following reports: • an annual treasury strategy in advance of the new financial year (Council 26 March 2025) • a mid-year treasury update report (Council 17 December 2025) • an annual report following the financial year-end describing the activity compared to the strategy (this report). 1.4 This report sets out: • A summary of the 2025/26 strategy. • The Council’s treasury position as at 31 March 2026. • The main Prudential Indicators and compliance with limits. • A summary of the economic factors affecting the strategy over 2025/26. • The 2025/26 Treasury activity.
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Appendix 1 • Performance indicators set for 2025/26. • Disclosure regarding the repayment of loan fund advances for 2025/26. • Risk and Performance. 2. A Summary of the 2025/26 Strategy 2.1 Borrowing – it is forecast that the capital borrowing need (the Capital Financing Requirement) will be almost fully funded by external borrowing which is a mixture of short term and long term debt. Against this background and the risk within the economic forecast, caution will be adopted with the 2026/27 treasury operations. The Section 95 Officer will monitor interest rates in financial markets and adopt a pragmatic approach to changing circumstances. 2.2 Investments - with the economic background at the time, the investment climate had one over-riding risk consideration - counterparty security risk. As a result of the underlying concerns, officers maintained an operational investment strategy which tightened the controls already in place in the approved investment strategy. The Council’s investment strategy primary objectives are safeguarding the re- payment of the principal and interest of its investments on time first and ensuring adequate liquidity second – the investment return being a third objective. 2.3 Based on the above, the treasury strategy was to defer borrowing where appropriate, by avoiding borrowing in advance of need, and to minimise longer- term borrowing in order to avoid the cost of holding higher levels of investments while also reducing counterparty risk. 3. The Council’s Treasury Position at 31 March 2026 3.1 During 2025/26, the Chief Officer – Resources, in line with the Treasury Strategy, managed the debt position with the use of internal funds as well as a mix of short-term and long-term external borrowing, and the treasury position at 31 March 2026 compared with the previous year was: Table 1 Treasury position – excluding PPP 31 March 2025 31 March 2026 Principal Average Rate Principal Average Rate Fixed Interest Rate Debt £789.860m 4.35% £858.677m 4.09% Variable Interest Rate Debt £0.000m 0.00% £0.000m 0.00% Total Debt £789.860m 4.35% £858.677m 4.09% Total Investments £13.820m 4.51% £28.584m 2.85% Net borrowing position £776.040m £830.093m 3.2 From the above table, it can be seen that the average interest rate on the debt held as at 31 March has decreased from 4.35% in 2025 to 4.09% as at 31 March 2026. At the same time the average rate has decreased on the investments held as at 31 March from 4.51% in 2025 to 2.85% as at 31 March 2026. 3.3 The external debt figure included within Table 1 includes both short term and long term debt.
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Appendix 1 3.4 There are four treasury prudential indicators which cover the activity of the treasury function. Complying with these indicators reduces the risk of an adverse movement in interest rates impacting negatively on the Council’s overall position: • Upper limits on variable rate exposure. • Upper limits on fixed rate exposure. • Maturity structures of borrowing. • Total principal funds invested for greater than 365 days. 3.5 Table 2 shows the actual upper limits set per debt type and maturity as at 31 March 2026. Table 2 2025/26 Actual 2025/26 Revised Indicator Upper Limits on Fixed Interest Rates 100.00% 100.00% (Against maximum position) Upper Limits on Variable Interest Rates 0.00% 50.00% (Against maximum position) Maturity Structure Fixed Rate Year End Max Min Borrowing (%) Under 12 months 39.29% 50.00% 0% 12 months to 2 years 0.64% 50.00% 0% 2 years to 5 years 27.65% 50.00% 0% 5 years to 10 years 2.12% 50.00% 0% 10 years to 20 years 2.10% 50.00% 0% 20 years to 30 years 4.29% 50.00% 0% 30 years to 40 years 4.26% 50.00% 0% 40 years to 50 years 15.69% 100.00% 0% 50 years to 60 years 3.97% 100.00% 0% 60 years to 70 years 0.00% 100.00% 0% Maximum Principal Funds Invested £0.470m £1m Nil > 364 Days 4. The Main Prudential Indicators and Compliance with Limits 4.1 The Council is required by the Prudential Code to report the actual prudential indicators after the year end. 4.1.1 Capital Expenditure and its Financing
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Appendix 1 This indicator shows total capital expenditure for the year and how this was financed. The decrease in capital expenditure between revised estimate and actual as noted below in Table 3 is due to expenditure which has been reprofiled from 2025/26 into the 2026/27 capital programme, together with resources. The indicators for 2025/26 will be revised in line with this. Table 3 2025/26 2025/26 Revised Actual Estimate* Capital expenditure: £97.269m £109.911m Resourced by: Capital receipts and grants £35.738m £51.890m Revenue £2.247m £0.000m Capital expenditure - additional need to borrow for in-year capital spend £59.284m £58.021m * From the Treasury Strategy Report 4.1.2 IFRS 16 Leases IFRS 16 Leases was adopted within the Local Authority Accounting Code of Practice from 2024/25. It requires most leases to be recognised on the balance sheet, with a corresponding right of use asset and lease liability. The capital element is applied to reduce the outstanding obligation and the interest element is charged to revenue on a straight-line basis over the terms of the lease. It is important to note that although these technical accounting changes will impact the CFR, they do not impact the borrowing required to finance capital plans. 4.1.3 Gross Borrowing and the Capital Financing Requirement (CFR) In order to ensure that borrowing levels are prudent, over the medium term the Council’s gross borrowing must only be used for capital purposes. Gross borrowing should not therefore, except in the short term, exceed the total of the capital financing requirement in the preceding year (2025/26) plus the estimates of any additional capital financing requirement for the current (2026/27) and next two financial years. This essentially means that the Council is not borrowing to support revenue expenditure. This indicator allows the Council some flexibility to borrow in advance of its immediate capital needs in 2025/26. Table 4 shows that in 2025/26 the council was in a temporary overborrowed position at year end due to timing differences of repayments of borrowings taking advantage of available funds. Any overborrowed funds were invested in line with the Treasury Strategy until required for repayment of borrowings in early 2026/27. 4.1.3 The Chief Officer Resources can confirm the Council has complied with this indicator over the medium term (as can be seen by comparing the gross debt
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Appendix 1 figure at 31 March 2026 with the anticipated CFR at 31 March 2029 as detailed in Table 4 below), and in the short term, the adjusted gross borrowing position also under the CFR as at 31 March 2026. Table 4 2025/26 Actual 2025/26 Revised Indicator* Gross borrowing position per Table1 £858.877m £833.120m PPP Liability £78,508m £78.755m IFRS 16 Liability £2.026m £2.462m Adjusted gross borrowing position £939.411m £914.337m Capital Financing Requirement £923.501m £922.200m 2025/26 Actual CFR at 31 March 2026 2025/26 Actual £923.501m Estimated Movement in CFR* 2026/27 £75.455m 2027/28 £48.073m 2028/29 £29.374m Anticipated CFR at 31 March 2029 £1,076,403m Gross Debt at 31 March 2026 £939.411m * Estimated movements from Treasury Management Strategy 2026/27 – March 2026 4.1.4 The Authorised Limit The Authorised Limit is the “Affordable Borrowing Limit” required by Section 35 of the Local Government in Scotland Act 2003. The Council does not have the power to borrow above this level. The information in Table 5 demonstrates that during 2025/26 the Council has maintained gross borrowing within its Authorised Limit. 4.1.5 The Operational Boundary The operational boundary is an indicator against which the Council monitors its external debt position. It is based on the Council’s estimate of the most likely (i.e. prudent but not worst case) scenario for external debt. Periods where the actual position is either below or over the Operational Boundary are acceptable subject to the Authorised Limit not being breached. The information in Table 5 demonstrates that during 2025/26 the Council has maintained gross borrowing within its Operational Boundary. 4.1.6 Actual financing costs as a proportion of net revenue stream
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Appendix 1 This indicator shows the actual impact of capital expenditure in 2025/26 compared to the projected impact of the General Services Capital Plan Refresh and the HRA Capital Plan Update as approved by Members on 4 March 2026. The cost of capital is described as loan charges within the revenue budgets. Table 5 * 2025/26 Revised Indicator - Authorised Limit £1,024,252m Revised Indicator - Operational Boundary £938.898m Maximum gross borrowing position during 2025/26 £870.083m Minimum gross borrowing position during 2025/26 £771.458m Estimated Actual Financing Costs as a proportion of net revenue stream General Fund 9.43% 7.27% Housing (HRA) 51.01% 48.13% * From Mid Year Report 17 December 2025 5. Summary of the Economic Factors affecting the Strategy during 2025/26 5.1 The Economy and Interest Rates 2025/26 – to March 2026 (Source: Link Treasury Management Annual Report Template 2025/26 Scotland April 2026) UK Economy As with 2024/25, UK inflation has proved somewhat stubborn throughout 2025/26. Having started the financial year at 3.5% y/y (April), the CPI measure of inflation peaked at 3.8% from July to September, before dipping to 3% in January and February. Core inflation picked up t o 3.2% in February, from 3.1%, and the recent upward pressure on energy costs could see CPI inflation breach 4.5% later this year. Against this backdrop, the continued lack of progress in ending the Russian invasion of Ukraine, and the potentially negative implications for global growth as a consequence of the implementation of US tariff policies, Bank Rate reductions look limited for the remainder of 2026 (as they do in the euro-zone). Bank Rate currently stands at 3.75%. Moreover, borrowing has becoming more expensive in 2025/26. Gilt yields have risen materially in March 2026, more than reversing the falls earlier in the financia l year. Additionally, the public finances have remained under pressure. The higher- than-expected public net sector borrowing of £14.3bn in February was £2.2bn above last February’s outturn. But that borrowing overshoot was mainly due to timing effects relating to the £13.0bn government debt interest payment. That came in as the highest payment si
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Appendix 1 nce June 2025, causing a 12.3% y/y jump in spending. On the flip side, sitting at £8.1bn, tax revenues were also higher than last February, largely on the back of solid growth in self-employment incomes in 2024/25, boosting self-assessment income tax receipts and stronger capital gains tax receipts. However, the combination of some energy price support and pressures from higher inflation amid the ongoing energy price shock, higher interest rates and a weaker economy will ultimately put borrowing on an upward trend. With the rise in energy prices possibly pushing the Retail Prices Index inflation up to a peak of 5.7%, debt interest repayments will increase by about £ 10bn. A weaker growth profile, higher inflation, higher interest rates and gilt yields could erode about £11bn of the Chancellor’s £23.6bn headroom. The loosening in the labour market continues to bear down on wage growth. The 3myy growth rate of average earnings including bonuses slowed from 4.2% in December to 3.9% in January. Meanwhile, excluding bonuses, private earnings growth continued to fall from 3.4% to 3.3%. The table below provides a snapshot of the conundrum facing central banks: inflation pressures remain, labour markets are still relatively tight by historical comparisons, and central banks are also having to react to a fundamental re-ordering of economic and defence policies driven largely by the US administration. UK Eurozone US Bank Rate 3.75% 2.0% 3.5%-3.75% GDP 0.1%q/q Q4 (1.0%y/y) +0.2%q/q Q4 (1.2%y/y) 0.7% Q4 Annualised Inflation 3.0%y/y (Feb) 1.9%y/y (Feb) 2.4%y/y (Feb) Unemployment Rate 5.2% (Jan) 6.2% (Jan) 4.4% (Feb) The Bank of England sprung no surprises in their March meeting, leaving Bank Rate unchanged at 3.75% by a vote of 9-0, but suggesting rates may need to rise if inflation picks up markedly. The vote could best be described as moderately hawkish. The MPC stated it “stands ready to act as necessary” and “is alert to the increased risk of domestic inflationary pressures through second-round effects in wage and price-setting”. Even so, we suspect the committee is likely to put equal weight on higher inflation and weaker growth, particularly the poor macroeconomic backdrop prior to the energy shock, keeping interest rates at 3.75% this year. 10-year Gilt yields have been exceptionally volatile in the final weeks of 2025/26, troughing at around 4.23% in late February before shooting up to 5.00% (and well through that on an intraday basis). That spike was driven by the outbreak of war in the Middle East, which prompted a dramatic reassessment of investors’ Bank of England policy rate expectations. Having been pricing in rate cuts in late-February,
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Appendix 1 as many as four rate hikes were discounted by late-March. The 10-year yield ended the quarter at 4.92% with around 65bp of rate hikes priced in over the coming year. In addition to more hawkish monetary policy expectations, part of this increase in yields probably reflected an increase in term premia amid concerns that the government may react by loosening the fiscal purse strings. As for equity markets, the FTSE 100 experienced another volatile quarter, surging to an all-time high of around 10,900 in late February, leaving it up 10% from the start of 2026, before giving back most of those gains in March after the outbreak of the Middle East conflict. That pullback leaves the index at around 10,176 at the end of the quarter. For context it was at 8,582 at the start of April. The £ has stayed relatively resilient also at $1.33, strengthening from $1.29 back in April. USA Economy Despite a weak finish to 2025, the US economy has generally been the strongest among the developed economies, but with uncertainties growing surrounding President Trump’s central economic tenet of being able to apply tariffs on an ad-hoc basis, and bend the FOMC Fed Funds rate decision-making to his will, there is something of a sta lemate in place at present over when, and if, rates will be cut further in 2026. Inflation is currently stuck at around 2.5%, unemployment is only a little above 4%, and tax refunds are in the process of being facilitated for many households. But will those refunds be – at least partially – offset by higher gasoline prices? The S&P500 started April 2025 at 5,633 and finished March 2026 at 6,528 having peaked at just over 7,000. The 10-year Treasury yield finished March at 4.30% having been 4.17% back at the start of April, and during the year has been both above 4.50% and below 4.00%. EZ Economy The Eurozone economy has run pretty much in parallel with that of the UK. A slightly stronger finish to 2025 (GDP of 0.2% q/q) than that of the UK cannot hide the fact that the economy has been negatively impacted by German economic stagnation until late in 2025. France has also struggled against a difficult political backdrop, but managed to post GDP growth of 0.3% q/q for October to December. With Eurozone headline inflation close to 2%, the ECB has been able to reduce its Deposit Rate to 2%. Whether i t rises from that low point will very much be driven by how energy prices trend over the coming months. The Euro has appreciated against the dollar from 1.08 at the start of April 2025 to 1.16 at the end of March. 5.2 Borrowing Rates in 2024/25 The graph for Public Works Loan Board (PWLB) interest rates below shows that interest rates continued to increase until October 2025 before easing slightly. Rates continued to
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Appendix 1 rise towards the end of the financial year and into 2026/27, reflecting renewed market volatility and wider economic uncertainty. 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% PWLB Rates 01.04.25 - 31.03.26 1 Year 5 Year 10 Year 25 Year 50 Year 50 year target % Source: Link Treasury Management Annual Report Template 2025/26 (Scotland) 6. 2024/25 Treasury Activity 6.1 Borrowing – The Council raised new short term loans of £240.500m during 2025/26 for the replacement of naturally maturing debt and to finance the Council’s capital programme. 6.2 Rescheduling – Debt rescheduling was carried out in 2025/26 to replace £33.1m of Barclays Market loans with PWLB borrowing. 6.3 Repayment – The Council repaid naturally maturing debt of £259.300m. 6.4 Summary of Debt Transactions – The overall position of the debt activity resulted in the average annual interest rate paid throughout the year, year on year decreasing from 4.35% (2024/25) to 4.35% (2024/25) 6.5 Investment Policy – The Scottish Government issued The Local Government Investments (Scotland) Regulations 2010 on 1 April 2010. 6.6 The investment activity during the year conformed to the approved strategy, and the Council had no liquidity difficulties. 6.7 The Council’s short term cash investments decreased from £29.087m at the beginning of the year to £13.881m at the end of the year with an average balance of £10.693m and received an average return of 4.77% over the year. In addition to the short term cash investments the Council also had 2 long term investments in Clydebank Property Company and Hub West Scotland
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Appendix 1 with a total value of £0.470m as at 31 March 2025 as identified in table 2 above (investments over 364 days). 7. Performance Indicators set for 2024/25 7.1 The treasury strategy defined a set of performance indicators covering the following areas: 7.1.1 Security - In the context of benchmarking, assessing security is a very subjective area. Security is currently evidenced by the application of minimum quality criteria to financial institutions that the Council may choose to invest in, primarily through the use of credit ratings supplied by the three main credit rating agencies (Fitch, Moody’s and Standard & Poors). The Council has benchmarked security risk by assessing the historical likelihood of default for investments placed with any institution with a long term credit rating of A- (this is the minimum long term credit rating used in the Council’s investment strategy). The Council’s maximum security risk is that 0.05% of investments placed with financial institutions could theoretically default based on global historical data. During the year all investments within the Council’s portfolio were repaid on their due dates with no defaults of the principal sums recorded. 7.1.2 Liquidity – As required by the CIPFA Treasury Management Code of Practice the Council has stated that it will “ensure that it has adequate, though not excessive, cash resources, borrowing arrangements, overdrafts or standby facilities to enable it at all times to have the level of funds available to it which are necessary for the achievement of its business/service objectives”. In respect to liquidity as defined above the liquidity arrangements during the year were maintained in line with the facilities and benchmarks previously set by the Council as follows: o Bank overdraft - £1.000m o Liquid short term deposits of at least £5.000m available overnight. 7.1.3 Return – For the financial year the investment return averaged 4.100% which is a decrease of 0.67% from the previous year. Table 6 illustrates that the Council’s average return identified of 4.10% was higher than the average return from the Council’s bankers investment account (3.96%) and less than the Money Market Funds rate (noted in table 6) which are the local measures of return investment benchmarks approved in March 2012. The Council’s bankers (and therefore the bank with which the investment account is held) are currently Virgin money (formerly Clydesdale Bank plc) which falls within the Category 3 Investment Category approved in the investment strategy approved in February 2017. Due to the credit rating of this bank this category specified a maximum limit £5.000m which may be held on an overnight basis only thus limiting the ability to attract interest on this account.
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Appendix 1 Table 6 Benchmark Benchmar k Return Average Return Compound 12 month SONIA* 5.02% 4.10% * SONIA is Sterling Overnight Index Average and has replaced LIBOR & LIBID 8. Disclosure regarding the repayment of loans fund advances for 2025/26 8.1 The policy on the prudent repayment of loans fund advances was detailed in the Mid-Year Monitoring Report 2025/26 - Treasury Management and Prudential Indicators reported to Council on 18 December 2025. 8.2 Table 7 shows the movement in the level of loan fund advances between 1 April 2025 and 31 March 2026 (excluding PPP and other leases). Table 7 General Fund Housing Opening Balance at 1 April 2025 £412.328m £373.242m New Advances in 2025/26 £8.607m £59.286m Repayments in 2025/26 (£5.949m) (£11.187m) Closing Balance at 31 March 2026 £414.986m £421.341m 8.3 Table 8 details the anticipated repayment profile of the balance on the loans fund advances (excluding debt interest and expenses) for both General Services and Housing held at 31 March 2026 (note, this is not external debt). Table 8 Future Repayment Profile at 31 March 2026 General Fund Housing Total £m £m £m Under 12 months 7.087 11.790 18.878 2 years to 5 years 21.446 39.463 60.909 6 years to 10 years 35.635 59.952 95.587 11 years to 15 years 35.964 60.829 96.793 16 years to 20 years 27.051 63.945 90.995 21 years to 25 years 19.634 51.295 70.929 26 years to 30 years 15.158 25.242 40.400 31 years to 35 years 14.751 12.283 27.034 36 years to 40 years 16.035 11.609 27.645 41 years to 45 years 17.282 7.902 25.184 46 years to 50 years 20.611 8.979 29.590 51 years to 55 years 26.726 11.985 38.711 56 years to 60 years 30.864 5.694 36.559 61 year + 126.743 50.371 177.114 Total 414.986 421.341 836.327
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Appendix 1 9. Risk and Performance 9.1 The Council has complied with all relevant statutory and regulatory requirements which require the Council to identify and, where possible, quantify the levels of risk associated with its treasury management activities. In particular its adoption and implementation of both the Prudential Code and the Code of Practice for Treasury Management means both that its capital expenditure is prudent, affordable and sustainable, and its treasury practices demonstrate a low risk approach. Ongoing consideration of future affordability and sustainability are reported and considered by Members each year when setting the Council’s General Fund and HRA capital and revenue budgets. 9.2 The Council is aware of the risks of passive management of the treasury portfolio and, with the support of the Council’s treasury advisers, has proactively managed its treasury position within the current economic climate taking advantage of lower interest rates where it is deemed appropriate. The Council has complied with its internal and external procedural requirements. There is little risk of volatility of costs in the current debt portfolio as the interest rates are predominantly fixed, with the majority of debt comprised of long-term loans. 9.3 Shorter-term rates and likely future movements in these rates predominantly determine the Council’s investment return. These returns can therefore be volatile and, whilst the risk of loss of principal is minimised through the annual investment strategy, accurately forecasting future returns can be difficult.