PCD 1580 2023/24 Mid Year Treasury Management Report

PCD 1580 2023/24 Mid Year Treasury Management Report 

The end of June 2023 saw the completion of the restructure of the GLA Group Investment Syndicate (GIS) into London Treasury Liquidity Fund (LTLF). Each GIS participant, including MOPAC, joined LTLF as a limited partner, replacing its GIS interest with an equivalent interest directly in LTLF. 

Returns on MOPAC’s investments during the Reporting Period were £15.69 million at an average rate of 5.46%.  

No additional short or long term borrowing has been undertaken and MOPAC Group’s borrowing levels have decreased from £486.15m at 31 March 2023 to £485.35m at 30 September 2023. 

All Treasury activity has been within the boundaries and levels set by the MOPAC Group and set out in the 2023/24 Treasury Management Strategy. 

The Deputy Mayor for Policing and Crime is asked to note the activity and performance on the Treasury Management function for the first half year 2023/24. 

PART I - NON-CONFIDENTIAL FACTS AND ADVICE TO THE DMPC 

Decision required – supporting report 

1. Introduction and Background 

1. The Treasury Management Strategy for 2023/24 was approved in March 2023 (PCD 1389). This report is submitted in accordance with a requirement under the CIPFA code for Treasury Management which requires the submission of a mid-year report on Treasury Management activities. 

2. This report provides detail of all investment and borrowing activities for the period from 1 April 2023 to 30 September 2023. It provides a comparison of the closing investment and debt positions as at 30 September 2023 with the 2023/24 full year budget and revised 2023/24 full year forecast, where relevant. 

2. Issues for Consideration 

Economic Update and Interest Rates 

1. The financial year began with rates at 4.25% with subsequent rate rises ending the Reporting Period at 5.25%. In its latest monetary policy meeting on 2 November 2023, the Bank of England left interest rates unchanged at 5.25%.  

2. The Bank of England does not want the markets to decide that a peak in rates will be soon followed by rate cuts, which would loosen financial conditions and undermine its attempts to quash inflation. A rebound in services inflation, another surge in wage growth and/or a further leap in oil prices could conceivably force it to raise rates in December 2023. The economic outlook remains uncertain. 

3. Link (MOPACs Treasury Management advisors) believe that the Bank of England will keep interest rates at the probable peak of 5.25% until the second half of 2024, after which interest rates are forecast to start to fall.  

4. The table below sets out the PWLB rate forecasts for the Certainty Rate (i.e. the PWLB standard interest rate reduced by 20 basis points, calculated as Gilts plus 80 basis points) which has been accessible to most authorities since 1 November 2012. 

 

Borrowing Activity 

5. The table below shows the Treasury Management position as at 30 September 2023. MOPAC’s Interim CFO is currently reviewing the need to borrow. 

 

 

Investment Activity 

6. On 30 June 2023, MOPAC joined LTLF as a limited partner and transferred its GIS interest to LTLF. The investment strategy and underlying investments remained unchanged by the transition from the GIS to LTLF, in accordance with MOPAC’s investment strategy. 

 

7. MOPAC’s investment balances increased from £202.68 million at 31 March 2023 to £500.97 million at 30 September 2023 due to the Home Office making a large £470m grant up front at the beginning of April.  

 

8. Returns on MOPAC’s investments during the Reporting Period were £15.69 million at an average rate of 5.46%.  

 

CIPFA Prudential Code Indicators and Treasury Management Limits 

9. It is a statutory requirement to determine and keep under review prudential and treasury management indicators for MOPAC. Due to a forecast overspend on the capital programme of £49m, the capital financing requirement indicator has been breached by a corresponding amount. However, the operational and authorised debt prudential indicators have not been exceeded.     

 

10. Further detail of performance against the prudential indicators and treasury management limits is included at Appendix One. 

3. Financial Comments 

 

1. As at 30 September MOPAC had received net interest of £7.73 million. Net interest receivable of £9.30 million is forecast against the approved budget of net interest payable of £13.05 million.  

 

 

2. Throughout the period, all treasury activities have been conducted within the parameters of the 2023/24 Treasury Management Strategy Statement (TMSS), alongside best practice suggested by the Chartered Institute of Public Finance and Accountancy (CIPFA) and Central Government. 

4. Legal Comments 

1. The DMPC has the authority to approve the “annual Treasury Management Strategy, which will include details of MOPAC investment and borrowing strategy” see para 4.7 of the MOPAC Scheme of Delegation and Consent. The DMPC approved the 2021/22 Treasury Management Strategy on 31 March 2022. The Treasury Management Strategy sets out the requirement for mid-year reporting which this paper fulfils.  

5. GDPR and Data Privacy  

1. GDPR matters have been discussed with the Data Protection Officer, who has confirmed that no Data Protection Impact Assessment (DPIA) is required for this area of spend. However, the personal details of any individuals or organisations with whom contract is made for the purposes of the engagement will be managed in accordance with MOPAC’s wider Privacy Notice. 

6. Equality Comments 

1. MOPAC is required to comply with the public sector equality duty set out in section 149(1) of the Equality Act 2010. This requires MOPAC to have due regard to the need to eliminate discrimination, advance equality of opportunity and foster good relations by reference to people with protected characteristics.  The protected characteristics are: age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex and sexual orientation.  

 

2. There are no equality and diversity implications arising from this report. 

7. Background/supporting papers  

1. Appendix 1 London Treasury Mid Year Report 

2. MOPAC  

2023-24 Mid-Year Treasury Management Report 

1. Introduction 

1. This report has been written in accordance with the requirements of the Chartered Institute of Public Finance and Accountancy (CIPFA) Code of Practice for Treasury Management in the Public Services, the CIPFA Prudential Code for Capital Finance in Local Authorities and the Department for Levelling Up, Housing and Communities (DLUHC) Guidance on Local Government Investments. It provides details of MOPAC’s investment and borrowing activities for the period from 1 April 2023 to 30 September 2023 (the Reporting Period) and highlights any relevant issues. 

2. MOPAC’s investment balances in the London Treasury Liquidity Fund (LTLF) were £500.97 million at 30 September 2023. Returns on MOPAC’s investments during the Reporting Period were £15.69 million. The forecast position is a return of £25.10 million against a budget of £8.8m. The forecast is under review and an updated position will be reported as part of the next Treasury Management Report. 

3. MOPAC’s external borrowing reduced from £486.15 million at 31 March 2023 to £485.35 million at 30 September 2023. 

4. All treasury activities have been conducted within the parameters of MOPAC’s Treasury Management Strategy Statement for 2023-24 (TMSS) which was approved on 31st March 2023. 

5. Treasury management has been delegated to the Greater London Authority (the GLA) under Section 401(A) of the GLA Act. The GLA relies on its own officers together with those of London Treasury Limited (LTL), its wholly owned subsidiary authorised and regulated by the Financial Conduct Authority (FCA), to deliver its treasury management shared service. This is governed by the arrangements for delegation for the provision of treasury management functions from MOPAC to the GLA entered into in 2014. 

6. The end of June 2023 saw the completion of the restructure of the GLA Group Investment Syndicate (GIS) into LTLF, a more conventional fund structure. Prior to this, the GLA was the sole investor in LTLF, with the GIS participants, including MOPAC’s, owning a pro-rata share of the GLA’s interest in LTLF through the GIS. On 30 June 2023, the GIS contractual arrangement was terminated and each GIS participant, including MOPAC’s, joined LTLF as a limited partner, replacing its GIS interest with an equivalent interest directly in LTLF. 

7. The investment strategy and underlying investments remained unchanged by the transition from the GIS to LTLF, in accordance with MOPAC’s investment strategy. The new fund, structured as an Alternative Investment Fund (AIF), provides additional regulatory oversight and assurance via its management by an independent Alternative Investment Fund Manager (AIFM), is more scalable and reduces individual participants’ accounting burdens. 

 

2. Economic Update 

1. The Link Group (Link) has been appointed as treasury advisors to the GLA and the treasury management shared service participants. The information and commentary provided in this section are from Link. 

2. The financial year began with rates at 4.25% with subsequent rate rises ending the Reporting Period at 5.25%. In its latest monetary policy meeting on 2 November 2023, the Bank of England left interest rates unchanged at 5.25%.  

3. The Bank of England does not want the markets to decide that a peak in rates will be soon followed by rate cuts, which would loosen financial conditions and undermine its attempts to quash inflation. A rebound in services inflation, another surge in wage growth and/or a further leap in oil prices could conceivably force it to raise rates in December 2023. The economic outlook remains uncertain. 

4. Link believes that the Bank of England will keep interest rates at the probable peak of 5.25% until the second half of 2024.  

3. Interest Rate Forecasts 

1. As part of its advisory services, Link provides interest rate forecasts. Link’s latest forecasts dated 7 November 2023 are set out in the table below. 

2. The PWLB rate forecasts set out below are for the Certainty Rate (i.e. the PWLB standard interest rate reduced by 20 basis points, calculated as Gilts plus 80 basis points) which has been accessible to most authorities since 1 November 2012. 

 Source: Link 

 

4. Treasury Management Strategy Statement and Investment Strategy Update 

1. There are no changes to MOPAC’s TMSS and investment strategy. 

2. During the Reporting Period, all treasury management operations have been conducted in full compliance with MOPAC’s Treasury Management Practices (TMP’s) as set out in MOPAC’s TMSS. 

3. MOPAC is both a participant in the GLA treasury management shared service and a limited partner in LTLF. As part of its shared service, the GLA provide MOPAC with a monthly cashflow, investment and borrowing report. As principal portfolio manager of LTLF, LTL also provides MOPAC with monthly and quarterly investment reports in relation to its investment in LTLF. 

5. Treasury Management Outturn Position at 30 September 2023 

 

 

 

Please note the borrowing and investment revised forecasts are based on information received at the time of writing this report.   

 

 

 

 

 

 

 

 

 

 

 

 

6. Borrowing Activities 

1. The table below shows the movement in external borrowing during the Reporting Period. 

 

2. No additional short or long term borrowing has been undertaken in the period.  

3. MOPAC officers are reviewing the need to borrow.   

7. Investment Activities 

1. On 30 June 2023, MOPAC joined LTLF as a limited partner and transferred its GIS interest to LTLF. The investment strategy and underlying investments remained unchanged by the transition from the GIS to LTLF, in accordance with MOPAC’s investment strategy. 

2. MOPAC’s investment balances increased from £202.68 million at 31 March 2023 to £500.97 million at 30 September 2023.  This was due to a large £470m grant paid by the Home Office up front, in a lump sum on the 11/04/23. 

 

 

Source: GIS and LTL 

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8. Investment Performance 

1. Returns on MOPAC’s investments during the Reporting Period were £15.69 million. The forecast position of £25.10m is currently under review and an updated position will be reported as part of the next Treasury Management report.  

 

9. Prudential and Treasury Management Indicators 

1. It is a statutory requirement to determine and keep under review prudential and treasury management indicators for MOPAC. 

Capital Expenditure Prudential Indicators 

 

 

Please note that the CFR estimate in 2023/24 has been breached, due to an overspend of £49m on capital expenditure.   However, the operational and authorised debt prudential indicators have not been exceeded.     

 

External Debt Prudential Indicators 

 

 

 

 

 

Treasury Management Prudential Indicators 

 

 

 

Liability Benchmark  

Source: Calculations based on data provided by MOPAC. 

 

The Liability Benchmark graph above demonstrates that the Outstanding Borrowing is within the Loans CFR and Liability Benchmark up to 2043/44.  It shows that the Authority is potentially under borrowed from 2023 to 2043 and any future borrowing or refinancing of debt should be kept below the Liability Benchmark marker.