To receive a report from the Interim Treasury & Investments Manager PSPSL.

Sean Howsam, Interim Treasury and Investment Manager proceeded to present Members with the Mid Term Treasury Management Report 2023/24 on the Council’s Treasury Management Strategy Statement and Annual Investment Strategy for the period ending 30 September 2023, pages 135 to 162 of the Agenda refer.

The Interim Treasury and Investment Manager detailed and highlighted pertinent information to Members from the Treasury Management Update at Appendix A, pages 141 to 159 of the Agenda refer, supported by the Capital Programme 2023/24 and Quarter 2 Forecast Outturn at Appendix A1, pages 160 to 162 of the Agenda refer.

Members were advised that the purpose of the report was to provide members with an update on Treasury Management performance and activity for the first six months of the financial year to ensure best practice was maintained.

Members were invited to put their comments and questions forward.

• A Member requested insight on how the viability and financial status of banks was assessed to protect investments. In response, the Interim Treasury and Investment Manager advised that the institutions the Council can invest in was detailed in the Annual Treasury Strategy. ELDC utilise the services of Link Group which were external treasury advisors who produce counterparty matrices to assess information and ratings to make recommendations for where to invest and for what duration. They had also introduced overlay measures to look at and monitor the cost of insuring against financial institutions defaulting on their debts. This also influenced the maximum duration they would recommend investing for or if the Council should make no further investments.

• A Member queried if Invest East Lindsey had repaid their housing development loans. In response, the Section 151 Officer advised that repayment was phased in accordance with the disposal of properties. Work was underway and the loans were expected to be repaid when the disposals were complete. There were no current concerns, although sufficient time was needed for disposal to occur.

• A member enquired what was the Council’s risk appetite and who made the decision to change that, page 159 of the Agenda refers. In response, the Section 151 Officer advised that the risk appetite was set out in regulation and principles were used known as security, liquidity and yield (SLY). Security of the assets was the most important factor, followed by liquidity to enable short notice cash availability and yield was the overriding criteria. In addition, the Council consider counterparties to determine where to invest and for how long, this control framework is approved every year through the Treasury Management Strategy and further overlay strategies were used to make recommendations to protect where the Council’s money is invested. The Section 151 Officer was ultimately responsible for agreeing where the Council’s overall risk resides.

• The Chairman requested clarification on the relationship between the redemption of the M&G Investments UK Property Fund and the financial position of the property investments, page 156 of the Agenda refers. In response, the Interim Treasury and Investment Manager explained that in relation to the original cost and deducting the amount received back, the revised book cost of £881,928 compared to the net asset value of that fund as at 30^th September 2023 was £979,691. Assuming the fund could liquidise those assets at the book price based at that date, the Council would make an overall gain of just under £98,000 on the M&G Fund. Investments were made as long-term investment decisions, however as property values fluctuate and as interest rates start to fall properties become more affordable. It was anticipated that being close to the bottom of the cycle property valuations were to start rising again.

• In reference to an approximate 2% return on loans to Invest East Lindsey, a Member queried if this was a favourable rate, page 155 of the Agenda refers. In response, the Section 151 Officer advised that the rate was based on when the loan was taken out and this was at a fixed and more favourable rate in 2022. Current rates would be substantially higher when reflecting the marketplace and timing was critical for when taking out loans. The interest rate stated was the half year position and double that would reflect the full year amount. 

• A Member enquired if the ethical status of financial institutions was given consideration when investing the Council’s funds. In response, Interim Treasury and Investment Manager stated that certain international banks had been invested in when they met the Council’s investment criteria. Where there had been concerns in relation to human rights and similar issues, the Section 151 Officer had made the decision made not to invest in that area. It would benefit to have a formal mechanism in place to continually review all financial institutions, although that would require a lot of resources and was not currently available. This has been raised with Link Group, the external treasury advisors and was being examined, however uncertainly remains on whether anything would materialise.

The Section 151 Officer stated it was beneficial to have such mechanisms available and there needs to be industry pressure on providers to deliver indicators to assist us. This was to continue being an area of focus going forward.

• In relation to surplus from the Towns and Levelling Up Funding, a Member queried if the surplus was from the Sutton Colonnade Fund and what happens to the surplus, page 137 of the Agenda refers. In response, the Section 151 Officer advised in instances when there was a delay in incurring capital expenditure, and the grant funding was not received in advance, spending was estimated for it was actually going to occur. It was clarified that the profile of the income was not narrowed down to a particular project as it relied on when the spend was anticipated to take place. In addition, the Capital Program was not controlled according to the grant received, but instead the Council manages the overall total in the Town’s Fund and reports accordingly.

No further comments or questions were received.

The Chairman thanked the Interim Treasury and Investment Manager for their report.

Following which it was,

RESOLVED:

That the Mid Term Treasury Management Update 2023/24 be noted.