Agenda item

(A report by Russel Stone, Director of Finance (S151 Officer))

The Committee received the suite of draft Treasury Management documents for the 2026/27 financial year, comprising the Treasury Management Policy Statement, Treasury Management Strategy Statement, Minimum Revenue Provision (MRP) Policy Statement and the Annual Investment Strategy. These documents were presented, by the Treasury and Investment Manager (PSPSL), as part of the Council’s annual cycle of financial governance and pre?decision scrutiny.

It was explained that the documents had been prepared in accordance with the CIPFA Prudential Code and the CIPFA Treasury Management Code, and that they formed a key component of the Council’s overall financial framework, governing the management of borrowing, investments, cashflow, and financial risk. Members were reminded that the papers were being presented in draft form pending completion of the wider budget setting process, after which Cabinet and Full Council would consider the finalised versions.

The Committee was informed that the Treasury Management Policy Statement itself remained unchanged from the previous year. The focus of this annual review was therefore on the Strategy, which detailed how the Council planned to manage its borrowing requirements and investment activity for 2026/27, including prudential indicators, borrowing and investment limits, and the Council’s overall approach to risk.

Members noted that the Council continued to operate an under?borrowed position, meaning internal resources were being used to finance capital expenditure where feasible, thereby avoiding external borrowing at higher interest rates. The draft documents also set out proposed changes to prudential borrowing limits, reflecting the Council’s projected Capital Financing Requirement (CFR) and major capital commitments planned across the medium term. These included proposals to increase the Operational Boundary for borrowing from £15m to £35m, and the Authorised Limit from £18m to £38m.

Finally, Members noted the proposal to increase the maximum permitted investment in the Council’s main Money Market Fund from £7.5m to £10m, to provide additional short?term liquidity flexibility during periods of peak cashflow activity.

The Committee undertook an extended review of the draft Treasury Management documents, examining the prudential indicators, borrowing strategy, investment criteria and MRP policy in technical detail.

Members explored the rationale behind the significant increase in the Operational Boundary and Authorised Limit for external borrowing. It was clarified that these higher limits did not signal an intention to borrow immediately, but instead provided the statutory headroom required to meet future borrowing needs if market conditions became favourable. Members were reminded that the Council’s CFR was expected to rise due to planned capital expenditure, and that the revised limits reflected these projections.

The Committee noted that the Council had chosen, in recent years, to meet borrowing needs through internal resources, but that this position could not be maintained indefinitely as reserves diminished through use.

A detailed explanation was provided regarding the forecast borrowing requirement for 2026/27, estimated at approximately £7.7m, arising largely from capital programme commitments. Members reviewed the classification of expenditure that contributed to the CFR, including historic unfinanced expenditure, refuse fleet replacement, property fund investments, and other capital projects.

The Committee also scrutinised the Council’s under?borrowed strategy, noting that while this approach remained prudent, rising capital commitments were expected to exert increasing pressure on available cash balances. Members discussed how external borrowing would be timed to secure the most favourable interest rates, taking account of short?medium? and long?term rate forecasts. Assurance was provided that interest rates and borrowing opportunities were monitored daily, enabling borrowing to be undertaken when financially advantageous.

Members examined the movements in expected investment balances, including the projected reduction from £6.5m to £2.1m, and received clarification that this movement was driven by the timing of capital payments, collection of income streams such as Council Tax, and fluctuations in creditor and debtor positions. The Committee recognised that these cashflow dynamics required flexibility in short?term investment activity, supporting the proposed increase in the Money Market Fund limit.

Detailed questions were raised about the Medium?Term Financial Strategy, specifically the emerging budget gap of £1.3m for the coming financial year and the steps being taken to reduce this before the final budget was presented to Cabinet and Full Council. The Committee was informed that if the gap could not be fully closed through savings and efficiencies, reserves could be used as a temporary measure, but this would require longer?term solutions.

Members also examined the updated Minimum Revenue Provision (MRP) Policy Statement, which incorporated changes required under the 2024 statutory guidance. Clarification was provided on the treatment of property fund investments, the calculation of MRP for “right?of?use” lease assets introduced under IFRS 16, and the prohibition on using capital receipts in place of MRP. Members received assurance that the Council conformed fully with these revised requirements.

The Committee also sought assurance on the governance of the Council’s property fund investments, including how decisions to continue holding or divesting would be reached. Members discussed the need for clear metrics or triggers that would prompt a formal review, particularly given movements in capital values and interest rate trends. Officers explained that property funds were monitored regularly and remained appropriate within the current Treasury Strategy, although further review would continue.

Members also discussed longer-term borrowing risks, including global macroeconomic uncertainty, interest rates volatility, potential market shocks, and the approach taken to liability benchmarking. Assurance was given that interest rate movements were subject to continuous monitoring and that borrowing would only be undertaken when prudent.

Finally, Members noted the importance of incorporating Environmental, Social and Governance (ESG) considerations more explicitly in future years, recognising this as an increasing area of focus for the sector. Plans to strengthen the Council’s ESG framework within treasury operations were acknowledged.

The recommendations were proposed by Councillor Anton Dani and seconded by Councillor Lina Savickiene.

Resolved:

That the  draft Treasury Management documents be recommended to Cabinet (February 2026) and Full Council (March 2026).