Patrick Rowe, Strategic Finance Manager, addressed the Committee and highlighted that the Council delayed taking new borrowing throughout 2023/24 to the second half of the year due to higher borrowing costs. As borrowing was delayed through the first two quarters of the fiscal year cash balances were lower than had been assumed when setting the budget. This resulted in a favourable variance for borrowing costs and an adverse variance in interest receivable.

Mr Rowe also updated the Committee on the performance of the Council’s reserves against the Bank of England’s base rate and the Sterling Overnight Rate (SONIA).

The Committee noted that the interest receivable figure of £6.3 million was larger than the interest payable figure of £4.5 million and questioned this calculation noting that the loan amount was larger than the investment amount.

Mr Rowe explained this was due to the average borrowing rate being lower than the average yield on cash balances, as well as the Housing Revenue Account internal borrowing recharge on approximately £130 million.

In response to questioning from the Committee, Mr Rowe clarified that the capital financing requirement included in the Prudential Indicators was not a set limit, but rather an estimate based on the forecast at the prior year end which is used as a comparator to actual capital programme activity during the year. He committed to making this clearer in the table.

The Committee noted that the Investment Grade Short Dated Credit Fund (IGSDCF) resulted in a capital return of -2.93% whilst the money market funds yielded +5.29% questioning why the Council was still investing in it.

Mr Rowe clarified that the investment in the IGSDCF was part of a diversification strategy, and that the investment was made on the basis that it created an opportunity to generate a higher yield over the medium term. He added that the IGSDCF had experienced improvement in the underlying capital value in year, as well as a steady increase to its distribution yield. He noted that because of the duration of the Fund’s underlying instruments it is expected that yields from the Fund will be greater than those of Money Market Funds at the tail end of the rate cycle.

Ewan McAlpine, Investment Director, and Andrew Cunnigham, Senior Account Manager, from Royal London made a presentation to the Committee in relation to the IGSDCF). The figures they provided showed the state of the fund as of 30^th June 2024.

The following was highlighted;

• The value of the Council’s holding in the fund was circa £23.2 million; and

• The income distribution yield was +4.5% over the past year; and 

• The total return on the Council’s investment since 2021, when it invested funds was 2.74%; and

• Royal London’s fee was fixed at 0.24% and was accounted for in the daily unit price of the fund.

The Committee noted that social housing was being used as security and questioned whether the overall portfolio index rating correctly captured the liquidity of social housing as an asset. Mr McAlpine explained that each asset was different and the specifics surrounding that asset, such as covenants and price, were factored in.

Mr McAlpine concluded the presentation by saying that when compared with the average return of other comparable funds, the IGSDCF had generally performed better.

The Chair thanked the presenters, and the Committee noted the report.