Agenda item

The Director of Corporate Services advised that this report set out the Authority’s borrowing and lending activities during 2024/25. All treasury activities undertaken throughout the year were in accordance with the Treasury Management Strategy 2024/25.

Economic Overview

UK inflation had been relatively static throughout 2024/25. Having started the financial year at 2.3% (April), the Consumer Price Index (CPI) measure of inflation briefly dipped to 1.7% in September before ending the financial year at 2.8%. The latest data showed CPI was 3.4% (June 2025) and expectations were that it would average 3.2% over the financial year; this compared to the 2% budgeted figure.

Against that backdrop and the global economy, the Bank Rate reductions had been limited. Bank Rate currently stood 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). Borrowing was currently expensive although rates were expected to reduce over the coming year or two.

Borrowing Overview

The borrowing levels of the Fire Authority remained unchanged at year end at £2m with no new long-term loans being taken. The existing loans were taken out with the Public Works Loan Board (PWLB) in 2007 when the base rate was 5.75%; with 3 loan amounts, maturity dates and respective interest rates set out in the report. Total interest paid on PWLB borrowing was £90k, which equated to an average interest rate of 4.49%.

The approved capital programme had no requirement to be financed from borrowing until 2026/27 and the debt related to earlier years' capital programmes.  While the borrowing was above its Capital Financing Requirement (CFR), which was the underlying need to borrow for capital purposes, this was because the Fire Authority had a policy of setting aside monies in the form of statutory and voluntary minimum revenue provision (MRP) in order to repay debt as it matures or to make an early repayment.

If the loans were to be repaid early there would be an early repayment (premium) charge. Previous reports on treasury management activities had reported that the premium and the potential loss of investment income had been greater than the savings made on the interest payments therefore it was not considered financially beneficial to repay the loans especially with the potential for increased interest rates. However, at 31 December the Authority would save £10k in interest, split over 10-years, if the loans were to be repaid early. As the Authority was budgeting a borrowing requirement to fund the capital programme from 2026/27, the additional interest on new loans would outweigh the £10k saving achieved from early repayment.

Investments

Both the Chartered Institute of Public Finance and Accountancy (CIPFA) Code and the then Ministry of Housing, Communities and Local Government (MHCLG) Guidance required the Authority to invest its funds prudently, and to have regard to the security and liquidity of its investments before seeking the highest rate of return, or yield. Throughout the year when investing money, the key aim was to strike an appropriate balance between risk and return.

To reduce credit risk to the Authority, HM Treasury’s Debt Management Office was the main counterparty for the Authority's investments via the operation of overnight deposits at 31 March 2025. This changed from the operation of a call account with Lancashire County Council from 1October 2024.

The Treasury Management Strategy does permit investment with other high-quality counterparties including other local authorities. During the year the total cash held by the Authority had been positive with the highest balance being £60.2m and the lowest £27.0m. For the monies invested with Lancashire County Council/Debt Management Office the range was £38.1m to £3.5m. The overnight deposit with the Debt Management Office at year end was £29.5m.

By placing monies in longer term fixed rate investments, it was anticipated a higher level of interest would be earned. However, having fixed term deals did reduce the liquidity of the investments and therefore their use was limited. At the year-end fixed investments of £20.0m were in place. During the year seven fixed term investments had matured and six new investments were made. The table on page 13 of the agenda pack showed the interest earned on fixed term investments in 2024/25. 

The call account provided by Lancashire County Council paid six base points (0.06%) below the base rate to 30 September 2024. From 1 October 2024 the overnight deposits with the Debt Management Office averaged five base points (0.05%) below the base rate. Each working day the balance on the Authority's current account was invested to ensure that the interest received on surplus balances was maximised. The average balance using these investments during the year was £22.5m earning interest of £1.08m.

The overall interest earned during this financial year was £2.27m at a rate of 5.07% which compared favourably with the backward-looking 1-month index (Sterling Overnight Index Average) which averaged 4.94% over the same period. The main factor for this was fixed deposits commencing in 2024/25 with high interest rates.

All these investments were made in accordance with the current Treasury Management Strategy and the CIPFA treasury management code of practice.

Cash flow and interest rates continued to be monitored by the Director of Corporate Services and the Authority’s finance team, and when rates were felt to be at appropriate levels further fixed term deposits would be placed.

Prudential Indicators

In order to control and monitor the Authority’s treasury management functions, several prudential indicators were determined against which performance could be measured. From 1 April 2024 the Fire Authority were required to implement international accounting standard IFRS 16 Leases, replacing IAS 17. The standard eliminated the distinction between finance and operating leases for lessees, which required most leases to recognise a right of use asset and liability on the balance sheet.

IFRS 16 had an impact on the Fire Authority’s private finance initiative (PFI) agreements which had resulted in an increase of the Authority’s other long-term liabilities, which had been included in the actual totals in the table on page 15 of the agenda reports pack. The Fire Authority had identified several property leases which were impacted. The liability for these properties was not included in the table however, the impact was expected to be within the authorised limit and operational boundary for external debt. The revised indicators for 2024/25 were presented in the report alongside the actual outturn position.

In response to a question from County Councillor A Riggott in relation to the variance in levels of investment in 2024/25, the DoCS confirmed that the service had received a Pensions Grant of £10m which had earned interest for the service, this had now began to be paid to members of the pension scheme. County Councillor A Riggott asked a further question in relation to why the split of investments had changed, the DoCS confirmed that the decision had been made to invest in more longer term investments, lasting 12 months as this was a more fruitful process.

In response to a question from Councillor S Sidat in relation to the Services reserves, the DoCS confirmed that the service had an estimated £5m in general reserves, £5/6m in earmarked reserves, £20m in Capital Reserves which would be utilised as part of the capital projects and £5m in PFI reserves which would be fully utilised. The Chair requested that members of Resources Committee be emailed a summary of reserves and details of earmarked reserves.

Resolved: That the Committee noted and endorsed the outturn position report.