Item 20 Appendix 1
West Dunbartonshire Council · 29 October 2025
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Appendix 1 Annual Report 2024/25 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 powers to borrow and invest as well as providing controls and limits on this activity. The Act permits Scottish Ministers to set 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 2024/25). Statutory Instrument (SSI) 29 of 2004, requires the Council to undertake any borrowing activity with regard to the CIPFA Prudential Code for Capital Finance in Local Authorities, and therefore 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 (SI) 2016 No 123 requires the Council to document its policy on the prudent repayment of loans fund advances. 1.2 The Council has adopted the CIPFA Code of Practice for Treasury Management in the Public Sector and the Prudential Code and operates its treasury management service and capital programme in compliance with these Codes and the above requirements. These require that the prime objective of the treasury management activity is the effective management of risk, and that its borrowing activities are undertaken in a prudent, affordable and sustainable basis. 1.3 During 2024/25 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 27 March 2024) a mid-year treasury update report (Council 18 December 2024) 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 2024/25 strategy. The Council’s treasury position at 31 March 2025. The main Prudential Indicators and compliance with limits. A summary of the economic factors affecting the strategy over 2024/25. The 2024/25 Treasury activity. Performance indicators set for 2024/25.
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Appendix 1 Disclosure regarding the repayment of loan fund advances for 2024/25. Risk and Performance. 2. A Summary of the 2024/25 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 2025/26 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 postpone borrowing (by not borrowing in advance of need) and in particular minimise longer term borrowing to avoid the cost of holding higher levels of investments at higher interest rates and to reduce counterparty risk. 3. The Council’s Treasury Position at 31 March 2025 3.1 During 2024/25, 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 2025 compared with the previous year was: Table 1 Treasury position – excluding PPP 31 March 2024 31 March 2025 Principal Average Rate Principal Average Rate Fixed Interest Rate Debt £718.597m 4.48% £789.860m 4.35% Variable Interest Rate Debt £0.000m 0.00% £0.000m 0.00% Total Debt £718.597m 4.48% £789.860m 4.35% Total Investments £28.997m 4.62% £13.820m 4.51% Net borrowing position £689.600m £776.040m 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 4.48% in 2024 to 4.35% as at 31 March 2025. At the same time the average rate has decreased on the investments held as at 31 March from 4.62% in 2024 to 4.51% as at 31 March 2025. 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 2025. Table 2 2024/25 Actual 2024/25 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 This indicator shows total capital expenditure for the year and how this was financed. The decrease in capital expenditure between revised estimate and
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Appendix 1 actual as noted below in Table 3 is due to expenditure which has been reprofiled from 2024/25 into the 2025/26 capital programme, together with resources. The indicators for 2024/25 will be revised in line with this. Table 3 2024/25 2024/25 Revised Actual Estimate* Capital expenditure: £122.234m £124.471m Resourced by: Capital receipts and grants £22.955m £26.549m Revenue £0.051m £0.250m Capital expenditure - additional need to borrow for in-year capital spend £99.228m £97.672m * From the Treasury Strategy Report 4.1.3 IFRS 16 Leases A new accounting standard, IFRS 16 Leases has been adopted within the Local Authority Accounting Code of Practice and is applicable to accounts for the year ending 31 March 2025. This generally requires all leases to be recognised on the balance sheet, which impacts both assets and other long term liabilities. The capital element of the lease is included as obligations under finance leases/creditors. The lease rentals comprise capital and interest elements. 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. 4.1.2 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 (2024/25) plus the estimates of any additional capital financing requirement for the current (2025/26) 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 2024/25. Table 4 shows that in 2024/25 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 2025/26. 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 2025 with the anticipated CFR at 31 March 2028 as detailed in Table 4 below), and in the short term, the adjusted gross borrowing position also under the CFR as at 31 March 2024. Table 4 2024/25 Actual 2024/25 Revised Indicator* Gross borrowing position per Table1 £789.860m £823.000m PPP Liability £82.853m £84.560m IFRS 16 Liability £1.926m £2.462m Adjusted gross borrowing position £874.639m £910.022m Capital Financing Requirement £871.164m £873.844m 2024/25 Actual CFR at 31 March 2025 2024/25 Actual £871.377m Estimated Movement in CFR* 2025/26 £73.524m 2026/27 £76.158m 2027/28 £48.094m Anticipated CFR at 31 March 2028 £1,084.398m Gross Debt at 31 March 2025 £874.639m * Estimated movements from treasury Management Strategy 2025/26 – March 2025 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 2024/25 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 2024/25 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 2024/25 compared to the projected impact of the General Services Capital Plan Refresh and the HRA Capital Plan Update as approved by Members on 5 March 2025. The cost of capital is described as loan charges within the revenue budgets. Table 5 * 2024/25 Revised Indicator - Authorised Limit £982.239m Revised Indicator - Operational Boundary £900.386m Maximum gross borrowing position during 2024/25 £801.256m Minimum gross borrowing position during 2024/25 £696.659m Estimated Actual Financing Costs as a proportion of net revenue stream General Fund 12.21% 7.25% Housing (HRA) 42.68% 50.37% * From Mid Year Report 18 December 2024 5. Summary of the Economic Factors affecting the Strategy during 2024/25 5.1 The Economy and Interest Rates 2024/25 – to March 2025 (Source: Link Treasury Management Annual Report Template 2024/25 Scotland April 2025) UK Economy UK inflation has proved somewhat stubborn throughout 2024/25. Having started the financial year at 2.3% y/y (April), the CPI measure of inflation briefly dipped to 1.7% y/y in September before picking up pace again in the latter months. The latest data shows CPI rising by 2.8% y/y (February), but there is a strong likelihood that figure will increase to at least 3.5% by the Autumn of 2025. Against that backdrop, and the continued lack of progress in ending the Russian invasion of Ukraine, as well as the potentially negative implications for global growth as a consequence of the implementation of US tariff policies by US President Trump in April 2025, Bank Rate reductions have been limited. Bank Rate currently stands at 4.5%, despite the Office for Budget Responsibility reducing its 2025 GDP forecast for the UK economy to only 1% (previously 2% in October). Moreover, borrowing has becoming increasingly expensive in 2024/25. Gilt yields rose significantly in the wake of the Chancellor’s Autumn Statement, and the loosening of fiscal policy, and have remained elevated ever since, as dampened growth expectations and the minimal budget contingency (<£10bn) have stoked market fears that increased levels of borrowing will need to be funded during 2025. The table below provides a snapshot of the conundrum facing central banks: inflation pressures remain, labour markets are still relatively tight by historical comparisons,
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Appendix 1 and central banks are also having to react to a fundamental re-ordering of economic and defence policies by the US administration. UK Eurozone US Bank Rate 4.50% 2.5% 4.25%-4.5% GDP 0.1%q/q Q4 (1.1%y/y) +0.1%q/q Q4 (0.7%y/y) 2.4% Q4 Annualised Inflation 2.8%y/y (Feb) 2.3%y/y (Feb) 2.8%y/y (Feb) Unemployment Rate 4.4% (Jan) 6.2% (Jan) 4.1% (Feb) The Bank of England sprung no surprises in their March meeting, leaving Bank Rate unchanged at 4.5% by a vote of 8-1, but suggesting further reductions would be gradual. The Bank of England was always going to continue its cut-hold-cut-hold pattern by leaving interest rates at 4.50% but, in the opposite of what happened at the February meeting, the vote was more hawkish than expected. This suggested that as inflation rises later in the year, the Bank cuts rates even slower, but the initial impact of President Trump’s tariff policies in April 2025 on the financial markets underpin our view that the Bank will eventually reduce rates to 3.50%. Having said that, the Bank still thinks inflation will rise from 2.8% in February to 3¾% in Q3. And while in February it said “inflation is expected to fall back thereafter to around the 2% target”, this time it just said it would “fall back thereafter”. That may be a sign that the Bank is getting a bit more worried about the “persistence in domestic wages and prices, including from second-round effects”. Accordingly, although we expect a series of rate cuts over the next year or so, that does not contradict the Bank taking “a gradual and careful” approach to cutting rates, but a tepid economy will probably reduce inflation further ahead and prompt the Bank to cut at regular intervals. From a fiscal perspective, the increase in businesses’ national insurance and national minimum wage costs from April 2025 is likely to prove a headwind, although in the near-term the Government’s efforts to provide 300,000 new homes in each year of the current Parliament is likely to ensure building industry employees are well remunerated, as will the clamp-down on immigration and the generally high levels of sickness amongst the British workforce. Currently wages continue to increase at a rate close to 6% y/y. The MPC would prefer a more sustainable level of c3.5%. As for equity markets, the FTSE 100 has recently fallen back to 7,700 having hit an all-time intra-day high 8,908 as recently as 3rd March. The £ has also endured a topsy-turvy time, hitting a peak of $1.34 before dropping to $1.22 in January and then reaching $1.27 in early April 2025. USA Economy Despite the markets willing the FOMC to repeat the rate cut medicine of 2024 (100 basis points in total), the Fed Chair, Jay Powell, has suggested that the Fed. Funds
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Appendix 1 Rate will remain anchored at 4.25%-4.5% until inflation is under control, and/or the economy looks like it may head into recession as a consequence of President Trump’s tariff policies. Inflation is close to 3% and annualised growth for Q4 2024 was 2.4%. With unemployment just above 4%, and tax cuts in the pipeline, the FOMC is unlikely to be in a hurry to cut rates, at least for now. EZ Economy The Eurozone economy has struggled throughout 2024 and is flat lining at present, although there is the promise of substantial expenditure on German defence/infrastructure over the coming years, which would see a fiscal loosening. France has struggled against a difficult political backdrop, but with a large budget deficit it is difficult to see any turn-around in economic hopes in the near-term. With GDP currently below 1% in the Euro-zone, the ECB is likely to continue to cut rates, although the headline inflation rate is still above 2% (2.3% February 2025). Currently at 2.5%, a further reduction in the Deposit Rate to at least 2% is highly likely. 5.2 Borrowing Rates in 2024/25 The graph for Public Works Loan Board (PWLB) interest rates below shows that interest rates have continued to increase and most PWLB rates have been on a general upward trend since May 2024. Source: Link Treasury Management Annual Report Template 2024/25 (Scotland) 6. 2024/25 Treasury Activity
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Appendix 1 6.1 Borrowing – The Council raised new short term loans of £259.300m during 2024/25 for the replacement of naturally maturing debt and to finance the Council’s capital programme. 6.2 Rescheduling – No debt rescheduling has taken place in 2024/25. 6.3 Repayment – The Council repaid naturally maturing debt of £243.000m. 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 4.48% (2023/24) 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 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
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Appendix 1 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 4.770% which is an increase of 0.201% from the previous year. Table 6 illustrates that the Council’s average return identified of 4.77% was less than the average return from the Council’s bankers investment account (4.85%) 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. Table 6 Benchmark Benchmar k Return Average Return Compound 12 month SONIA* 5.09% 4.77% * SONIA is Sterling Overnight Index Average and has replaced LIBOR & LIBID 8. Disclosure regarding the repayment of loans fund advances for 2024/25 8.1 The policy on the prudent repayment of loans fund advances was detailed in the Mid-Year Monitoring Report 2024/25 - Treasury Management and Prudential Indicators reported to Council on 18 December 2024. 8.2 Table 7 shows the movement in the level of loan fund advances between 1 April 2024 and 31 March 2025 (excluding PPP and other leases). Table 7 General Fund Housing Opening Balance at 1 April 2024 £395.220m £348.200 m New Advances in 2024/25 £8.897m £56.492m Repayments in 2024/25 (£4.551m) (£9.502m) Closing Balance at 31 March 2025 £399.566m £395.190 m 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 2025 (note, this is not external debt).
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Appendix 1 Table 8 Future Repayment Profile at 31 March 2025 General Fund Housing Total £m £m £m Under 12 months 5.375 11.187 16.562 2 years to 5 years 17.054 35.208 52.262 6 years to 10 years 30.198 57.559 87.757 11 years to 15 years 32.857 55.042 87.898 16 years to 20 years 26.440 58.385 84.825 21 years to 25 years 19.157 50.459 69.616 26 years to 30 years 14.241 27.448 41.689 31 years to 35 years 12.875 8.284 21.159 36 years to 40 years 14.391 7.387 21.778 41 years to 45 years 15.330 6.777 22.107 46 years to 50 years 18.045 8.518 26.563 51 years to 55 years 23.970 11.274 35.244 56 years to 60 years 28.382 7.843 36.225 61 year + 141.252 49.819 191.071 Total 399.566 395.190 794.756 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.
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