Appendix 1

Treasury Management Strategy Statement 2026/27 Including Minimum Revenue Provision Policy Statement and Annual Investment Strategy

CONTENTS

1.            INTRODUCTION

1.1.          Background

1.2.          Reporting Requirements

1.3.          Treasury Management Strategy for 2026/27

1.4.          Treasury Management Policy Statement

1.5.          Current Portfolio Position

2.            BORROWING STRATEGY

2.1.          Capital Prudential Indicators

2.2.          Borrowing Strategy for 2026/27

2.3.          Liability Benchmark

2.4.          Policy for Borrowing in Advance of Need

2.5.          Debt Rescheduling

2.6.          Interest Rate Risk & Continual Review

3.            MINIMUM REVENUE PROVISION POLICY STATEMENT

4.            ANNUAL INVESTMENT STRATEGY

4.1.          Annual Investment Strategy for 2026/27

4.2.          Investment Policy – Management of Risk

4.3.          Sovereign Credit Ratings

4.4.          Creditworthiness Policy

4.5.          Investment Risk Benchmarking

4.6.          Investment Performance Benchmarking

5.            OTHER TREASURY ISSUES

5.1.          Banking Services

5.2.          Training

5.3.          Policy on the use of External Service Providers

5.4.          Lending to Third Parties

5.5.          Updates to Accounting Requirements

 ANNEXES:

Annex A          Counterparty List

Annex B          Economic Background & Prospect for Interest Rates

Annex C          Prudential & Treasury Indicators

Annex D          Scheme of Delegation

Annex E          Investment Product Glossary

Annex F          Local Authority Outlook                       

1. INTRODUCTION

1.1       Background

The Council is required to operate a balanced budget, which broadly means that cash raised during the year will meet cash expenditure. Part of the treasury management operation is to ensure that this cash flow is adequately planned, with cash being available when it is needed.  Surplus monies are invested in counterparties or instruments commensurate with the Council’s risk appetite, providing adequate liquidity initially before considering investment return.

The second main function of the treasury management service is the funding of the Council’s capital plans. These capital plans provide a guide to the borrowing need of the Council, essentially the longer-term cash flow planning, to ensure that the Council can meet its capital spending obligations. This management of longer-term cash may involve arranging long or short-term loans or using longer-term cash flow surpluses. On occasion, when it is prudent and economic, any debt previously drawn may be restructured to meet Council risk or cost objectives.

The contribution the treasury management function makes to the authority is critical, as the balance of debt and investment operations ensure liquidity or the ability to meet spending commitments as they fall due, either on day-to-day revenue or for larger capital projects. The treasury operations will see a balance of the interest costs of debt and the investment income arising from cash deposits affecting the available budget.  Since cash balances generally result from reserves and balances, it is paramount to ensure adequate security of the sums invested, as a loss of principal will in effect result in a loss to the General Fund Balance.

CIPFA defines treasury management as:

“The management of the local authority’s borrowing, investments and cash flows, its banking, money market and capital market transactions; the effective control of the risks associated with those activities; and the pursuit of optimum performance consistent with those risks.”

As set out in the RPPR Budget report to Cabinet on 27 January 2026, due to the Council’s overall challenging financial position, the Council has applied to government for Exceptional Finance Support (EFS) for 2026/27 in the form of a capitalisation direction. If approved by Government, this would allow the Council to treat certain types of revenue expenditure as capital expenditure, allowing them to be funded by borrowing or capital receipts as opposed to from the revenue budget. The impact of this on the Council’s borrowing strategy and treasury management activity has been reflected in this TMSS, with specific implications separately reported where possible to explicitly demonstrate financial implications.

Whilst any commercial initiatives or loans to third parties will impact on the treasury function, these activities are generally classed as non-treasury activities, (arising usually from capital expenditure), and are separate from the day-to-day treasury management activities.

1.2       Reporting Requirements

 

1.2.1    Capital Strategy

The CIPFA 2021 Prudential and Treasury Management Codes require all local authorities to prepare a capital strategy report, to provide the following:

·           a high-level long-term overview of how capital expenditure, capital financing and treasury management activity contribute to the provision of services

·           an overview of how the associated risk is managed

·           the implications for future financial sustainability

The aim of the capital strategy is to ensure that all elected members on the Council fully understand the overall long-term policy objectives and resulting capital strategy requirements, governance procedures and risk appetite.

This capital strategy is reported separately from the Treasury Management Strategy Statement; non-treasury investments will be reported through the former. This ensures the separation of the core treasury function under security, liquidity and yield principles, and the policy and commercialism investments usually driven by expenditure on an asset.

 

1.2.2    Treasury Management reporting

The Council is currently required to receive and approve, as a minimum, three main treasury reports each year, which incorporate a variety of policies, estimates and actuals. 

a.    Prudential and treasury indicators and treasury strategy (this report) - The first, and most important report is forward looking and covers:

·         the capital plans, (including prudential indicators);

·         a minimum revenue provision (MRP) policy, (how residual capital expenditure is charged to revenue over time);

·         the treasury management strategy, (how the investments and borrowings are to be organised), including treasury indicators; and

·         an investment strategy, (the parameters on how investments are to be managed).

b.    A mid-year treasury management report – This is primarily a progress report and will update members on the capital position, amending prudential indicators as necessary, and whether any policies require revision.

c.    An annual treasury report – This is a backward looking review document and provides details of a selection of actual prudential and treasury indicators and actual treasury operations compared to the estimates within the strategy.

This Council delegates responsibility for implementation and monitoring treasury management to Cabinet and responsibility for the execution and administration of treasury management decisions to the Section 151 Officer. Cabinet therefore receives the Mid-Year and Annual treasury reports in December each year.

The above reports are required to be adequately scrutinised before being recommended to the Council.  This role is undertaken by the Audit Committee.

d.  Quarterly reports – In addition to the three major reports detailed above, quarterly treasury reporting is incorporated into the quarterly Council Monitoring process.

1.3       Treasury Management Strategy for 2026/27

The strategy for 2026/27 covers two main areas:

 

Capital issues

• the capital expenditure plans, including expenditure allowable under capitalisation direction, (section 2) and associated prudential indicators (Annex C);
• the minimum revenue provision (MRP) policy (Section 3).

Treasury management issues

• the current treasury portfolio position (section 1.5);
• the borrowing strategy (section 2);
• policy on borrowing in advance of need (section 2.4);
• debt rescheduling (section 2.5);
• the investment strategy (section 4);
• creditworthiness policy (section 4.4);
• the policy on use of external service provider (section 5.3).
• prospects for interest rates (Annex B); and
• treasury indicators which limit the treasury risk and activities of the Council (Annex C);

These elements cover the requirements of the Local Government Act 2003, MHCLG Investment Guidance, MHCLG MRP Guidance, the CIPFA Prudential Code and the CIPFA Treasury Management Code.

1.4       Treasury Management Policy Statement

The policies and objectives of the Council’s treasury management activities are as follows:

i)              This Council defines its treasury management activities as:

‘The management of the authority’s investments and cash flows, its banking, money market and capital market transactions; the effective control of the risks associated with those activities; and the pursuit of optimum performance consistent with those risks’.

ii)    This Council regards the successful identification, monitoring and control of risk to be the prime criteria by which the effectiveness of its treasury management activities will be measured. Accordingly, the analysis and reporting of treasury management activities will focus on their risk implications for the Council, and any financial instruments entered into to manage these risks.

iii)   This Council acknowledges that effective treasury management will provide support towards the achievement of its business and service objectives. It is therefore committed to the principles of achieving value for money in treasury management, and to employing suitable comprehensive performance management techniques, within the context of effective risk management.

1.5       Current Portfolio Position

A summary of the Council’s borrowing & investment portfolios as at 30 November 2025 and forecast at the end of the financial year is shown in Table 1 below:

Table 1	Actual at 30 November 2025			Forecast to 31 March 2026
	£’000	% of portfolio	Average Rate	£’000	% of portfolio	Average Rate
Investments
Banks	11,000	15%	4.07%	10,000	20%	3.80%
Local Authorities	35,000	47%	4.35%	25,000	50%	4.25%
Money Market Funds	22,800	31%	4.05%	10,000	20%	3.75%
CCLA Pooled Property Fund*	5,000	7%	3.90%	5,000	10%	3.90%
Total Investments	73,800	100%	4.20%	50,000	100%	4.03%
Borrowing
PWLB loans	200,142	100%	4.38%	200,142	100%	4.38%
Market loan	-	-	-	-	-	-
Total external Borrowing	200,142	100%	4.38%	200,142	100%	4.38%

*£4,358,632 capital valuation 30 November 2025

 

 

2.      BORROWING STRATEGY

The capital expenditure plans of the Council are set out in the Capital Strategy Report being considered by Full Council on 10 February 2026. The treasury management function ensures that the Council’s cash is organised in accordance with the relevant professional codes so that sufficient cash is available to meet this service activity and Capital Strategy. This will involve both the organisation of the cash flow and, where capital plans require, the organisation of appropriate borrowing facilities. The strategy covers the relevant treasury / prudential indicators, the current and projected debt positions, and the Annual Investment Strategy.

Any capital investment, or expenditure allowable under capitalisation direction, that is not funded from these new and/or existing resources (e.g. capital grants, receipts from asset sales, revenue contributions or earmarked reserves) increases the Council’s need to borrow, represented by the Capital Financing Requirement (CFR). However, external borrowing does not have to take place immediately to finance its related capital expenditure: the Council can utilise cash being held for other purposes (such as earmarked reserves and working capital balances) to temporarily defer the need for external borrowing. This is known as ‘internal borrowing’.

The Council’s primary objective is to strike an appropriate balance between securing cost certainty, securing low interest rates.

2.1       Capital Prudential Indicators

The Authority’s capital expenditure plans are a key driver for Treasury Management activity. The output of the capital expenditure plans is reflected in the prudential indicators, which are designed to assist members’ overview and confirm capital expenditure plans.

Tables 2 and 3 show the capital expenditure plans of the Authority, and the implications of these on the Capital Financing Requirement over the 3-year MTFP period to 2028/29.

The liability benchmark shown in section 2.3 measures the authority’s external debt levels net of the external investments, with the inclusion of a liquidity buffer against the Authority’s CFR projection. This measure assumes that the authority will internally borrow almost all its available cash balances held in reserves and balances, with an allowance ensure it is able to meet is cash obligations.

There are four components to the Liability Benchmark: -

1.            Existing loan debt outstanding: the Authority’s existing loans that are still outstanding in future years.

2.            Loans CFR: this is calculated in accordance with the loans CFR definition in the Prudential Code and projected into the future based on approved prudential borrowing and planned MRP.

3.            Net loans requirement: this will show the Authority’s gross loan debt less treasury management investments at the last financial year-end, projected into the future and based on its approved prudential borrowing, planned MRP and any other major cash flows forecast.

4.            Liability benchmark (or gross loans requirement): this equals net loans requirement plus short-term liquidity allowance.

The Liability Benchmark has been produced below in section 2.3 and notes included to explain each element and the Authority’s assumptions and forward view.

2.2       Borrowing Strategy for 2026/27

The Council has been carrying an internal borrowing position since 2019/20, which means that the capital borrowing need has not been fully funded with external borrowing as cash supporting the Council’s reserves, balances and cash flow has been used as a temporary measure. This policy reduces cost and reduces investment counterparty risk as the Council are using cash from its own reserves to fund its borrowing requirement as opposed to entering into external borrowing, and has been considered prudent as medium and longer dated borrowing rates are expected to fall from their current levels.

Modelling of the movement of reserves and the Council’s capital expenditure plans previously demonstrated that the Council’s long-term reserves could support a level of at least £75m of internal borrowing, mitigating the need to undertake new external borrowing. The borrowing strategy for 2026/27 will initially focus on meeting this borrowing need from internal borrowing; however, due to an increasing borrowing requirement, reducing reserves, and the recommendation to apply for Exceptional Financial support in the form of capitalisation direction, it is likely that the council will need to enter into new borrowing at some point during 2026/27.

Against this background and the risks within the economic forecast, caution will be adopted with the 2026/27 treasury operations. Interest rates in financial markets will be monitored and a pragmatic approach adopting to changing circumstances when considering the timing of undertaking any new borrowing.

Table 2 below provides a summary of the Councils’ current borrowing portfolio and projected for future balances based on known maturity of existing debt. During the 2025/26 financial year, the last remaining market loan (with Barclays) was repaid early at a discount to the initial loan value. Therefore, all current borrowing is held with the PWLB.

Table 2 – Current Borrowing Portfolio
2025/26 Projected £m		2026/27 Projected £m	2027/28 Projected £m	2028/29 Projected £m
212	External Debt at 1 April	200	195	190
(12)	In-Year Maturity	(5)	(5)	(6)
200	External Debt at 31 March	195	190	184
	Total Borrowing by Type:
200	PWLB	195	190	184
-	Market Loans	-	-	-
200	Total Borrowing at 31 March	195	190	184

Table 3 below provides the Council’s capital expenditure plans for 2025/26 and over the MTFP period to 2028/29 and how these plans are being financed, with any shortfall in resources resulting in a borrowing requirement. The Council’s Capital Programme 2026/27 to 2028/29 forecasts £234m of capital investment with £183m met from existing or new resources, therefore resulting in a borrowing need of £51m over the next three years. There is £29m expected to be funded via borrowing in the 2025/26 Capital Programme, which is expected to be funded temporarily through cash balances.

The table also presents the additional borrowing requirement as part of the application for Exceptional Financial Support (EFS) in the form of a capitalisation direction. This allows local authorities to treat certain types of revenue expenditure as capital expenditure, allowing them to be funded by borrowing or capital receipts as opposed to from the revenue budget. The council intends to treat up to £70m of revenue spend as additional capital expenditure 2026/27 as part of the capitalisation direction.

Table 3 – Capital Programme Borrowing Requirements
2025/26 Projected £m		2026/27 Projected £m	2027/28 Projected £m	2028/29 Projected £m
97	Capital Expenditure	102	72	60
(68)	Capital Programme Funding	(72)	(57)	(54)
29	Capital Programme Borrowing	30	15	6
-	EFS Capitalisation Direction Borrowing	70	0	0
29	Total Borrowing Requirement	100	15	6

 

Table 4 below shows the impacts of the borrowing requirement identified above against the Capital Financing Requirement (CFR). The CFR represents the total historic outstanding capital expenditure which has not yet been paid for from either revenue or capital resources. Any capital expenditure which has not immediately been paid for through an identified funding, will increase the CFR.  The CFR is reduced over time in the form of a Minimum Revenue Provision (MRP) charge, being a statutory annual revenue charge which broadly reduces the indebtedness in line with each asset’s life.

The table also presents the impact of the additional borrowing requirement in the form of a capitalisation direction. Where revenue costs may be treated as capital expenditure by virtue of a capitalisation direction and the costs are financed by debt (borrowing), this will increase the council’s CFR and MRP will be due. The MRP guidance recommends that MRP in cases of capitalisation direction should be charged over a maximum of 20 years.

 

 

 

Table 4 – Capital Financing Requirement
2025/26 Projected £m		2026/27 Projected £m	2027/28 Projected £m	2028/29 Projected £m
292	Opening Capital Programme CFR	313	334	339
29	Capital Programme Borrowing (table 3)	30	15	6
(8)	Minimum Revenue Provision	(9)	(10)	(11)
313	Closing Capital Programme CFR	334	339	334
-	Opening Capitalisation Direction CFR	-	70	67
-	Capitalisation Direction Borrowing (table 3)	70	-	-
-	Minimum Revenue Provision	-	(3)	(3)
-	Closing Capitalisation Direction CFR	70	67	64
313	Total Capital Financing Requirement	404	406	398

*CFR in Table 4 is the underlying need to borrow and excludes PFI and lease arrangements, which are included in the CFR figure in the Prudential Indicators in Annex C

Table 5 below compares the forecast CFR position against the current debt portfolio to demonstrate how this is expected to increase the Council’s under-borrowed position if no further borrowing is undertaken. 

Table 5 – Level of Under Borrowing
2025/26 Projected £m		2026/27 Projected £m	2027/28 Projected £m	2028/29 Projected £m
200	External Debt at 31 March (table 2)	195	190	184
313	Capital Financing Requirement (table 4)	404	406	398
(113)	Level of Under Borrowing	(209)	(216)	(214)

The Council’s priority is to strike a balance between cost and certainty, and therefore the internal borrowing position will be carefully monitored to avoid incurring higher borrowing costs in the future at a time when the authority may not be able to avoid new borrowing to finance capital expenditure or refinance maturing debt.

2.3       Liability Benchmark

The Liability Benchmark is a measure of the Council’s borrowing need were it to fully utilise its cash-backed reserves and balances to avoid external borrowing. It assumes a liquidity buffer is maintained to ensure the Council’s obligations are able to be met.

The Council’s liability benchmark is shown below:

1)    External Debt – The maturity profile of the current portfolio of external debt is shown by the bars. The debt has a very gradual maturity profile which means that there are no requirements to pay back large amounts of debt in any one year.

2)    Loans CFR – This is the projections of the Council’s underlying borrowing requirement (or CFR) based on the Council’s capital plans and capitalisation direction, and is shown by the green line. The 2025/26 opening Loans CFR was £292m, and it is expected to peak at £478m in 2035/36. This only shows the Loans CFR projection based on the current capital programme of the Council, therefore if ongoing borrowing is required beyond 2035/36 then the CFR would rise further and for longer.

3)    Net Loans Requirement – The expected net treasury position is shown by the red line. This shows a projection of the loans requirements measured by opening external debt for 2025/26 (£212m) less the opening external investments for 2025/26 (£115m). The projections are then based on the expected borrowing and the expected movement in reserves and balances, and shows the borrowing requirement if the Council were to utilise all of its reserves and balances for internal borrowing. This shows that the Council had more external debt than external investment as at 31/03/25, which is expected to continue into 2026/27 and beyond as reserves reduce and borrowing is required in the capital programme. The Net Loans Requirement also peaks in 2035/36 as a result of the end of current capital planning period.

The graph shows that the Net Loans Requirement will become greater than the Loans CRF value in 2028/29, suggesting that if the council’s financial position continues as expenditure currently forecast, then the Council will need to borrow to finance its day-to-day expenditure in addition to its capital programme and applied capitalisation direction.

4)    Liability Benchmark – The liability benchmark shows the Net Loan Requirement, but with a buffer of £70m incorporated to ensure the Council has sufficient cash to meet its cash obligations. This measure shows the level to which the Council can internally borrow based on the projection of the capital programme, movement of reserves and allowing for a liquidity buffer. Where the liability benchmark rises above the current debt portfolio, this shows a need for external borrowing, and where the benchmark reduces back below the current portfolio, it shows that the Council will be over-borrowed based on current plans.

This graph demonstrates that the Council will need to externally borrow in 2026/27, and that the external borrowing requirement will peak at £647m in 2034/35, before falling.

Whilst the Liability Benchmark is a good indicator of the Council’s direction of travel in terms of borrowing need, it assumes that capital borrowing stops after the current capital planning period, and ignores future borrowing beyond the planning period. Therefore it should not be used in isolation when making long term decisions, but as part of a range of factors.

2.4       Policy on Borrowing in Advance of Need

The Council will not borrow purely in order to profit from investment of extra sums borrowed. Any decision to borrow in advance will be within approved Capital Financing Requirement estimates and will be considered carefully to ensure that value for money can be demonstrated and that the Council can ensure the security of such funds.  Risks associated with any borrowing in advance activity will be subject to prior appraisal and subsequent reporting.

2.5       Debt Rescheduling

Officers continue to regularly review opportunities for debt rescheduling, but there has been a considerable widening of the difference between new borrowing and repayment rates, which has resulted in much fewer opportunities to realise any savings or benefits from rescheduling PWLB debt. 

The reasons for any rescheduling to take place will include:

§  the generation of cash savings and / or discounted cash flow savings;

§  helping to fulfil the treasury strategy;

§  enhance the balance of the portfolio (amend the maturity profile and/or the balance of volatility).

The strategy is to continue to seek opportunity to reduce the overall level of Council’s debt where prudent to do so, thus providing in future years cost reduction in terms of lower debt repayments costs, and potential for making savings by running down investment balances to repay debt prematurely as short term rates on investments are likely to be lower than rates paid on current debt.  All rescheduling will be agreed by the Chief Finance Officer.

2.6       Interest Rate Risk & Continual Review

The total borrowing requirment in Table 3, as well as the debt at risk of maturity shown in Table 6 below is the extent to which the Council is subject to interest rate risk. Note that the 2025/26 figure includes the earlly reapyment of the last remaining market loan (with Barclays) at a discount to the initial loan value.

Table 6 – Debt Maturity
2025/26 Projected £m		2026/27 Projected £m	2027/28 Projected £m	2028/29 Projected £m
12	Maturing Debt	5	5	6
0	Debt Subject to Early Repayments	0	0	0
12	Total debt at risk of maturity	5	5	6

 

Officers continue to review the need to borrow taking into consideration the potential increases in borrrowing costs, the need to finance new capital expenditure, refinancing maturing debt, and the cost of carry that might incur a revenue loss between borrowing costs and investment returns.

Against this background and the risks within the economic forecast, caution will be adopted with the 2026/27 treasury operations.  The Chief Finance Officer will continue to monitor interest rates in financial markets and adopt a pragmatic approach to changing circumstances:

·         if it was felt that there was a significant risk of a sharp FALL in borrowing rates, then borrowing will be postponed.

·         if it was felt that there was a significant risk of a much sharper RISE in borrowing rates than that currently forecast, fixed rate funding will be drawn whilst interest rates are lower than they are projected to be in the next few years.

 

 

3.      MINIMUM REVENUE PROVISION POLICY STATEMENT

Under Regulation 27 of the Local Authorities (Capital Finance and Accounting) (England) regulation 2023, where the Council has financed capital expenditure by borrowing, The Council it is required to pay off an element of the accumulated General Fund capital spend each year (the Capital Financing Requirement - CFR) through a revenue charge (the Minimum Revenue Provision - MRP). The 2003 Regulations have been further amended with full effect from April 2025 to expressly provide that in determining a prudent provision local authorities cannot exclude any amount of CFR from its calculation, unless by an exception set out in statute.

The Ministry of Housing, Communities and Local Government (MHCLG) regulations require the full Council to approve an MRP Statement in advance of each year. A variety of options are available to Councils, so long as the principle of any option selected ensures a prudent provision to redeem its debt liability over a period which is commensurate with that over which the capital expenditure is estimated to provide benefits (i.e. estimated useful life of the asset being financed).

The Minimum Revenue Provision Policy Statement for 2025/26 forms part of the council’s Treasury Management Strategy 2025/26 which was formally approved at Full Council on 11 February 2025. Under MHCLG guidance, when a local authority varies the methodology used to determine prudent provision, they should present a revised MRP statement to the next full Council or equivalent explaining the rationale for the change and the financial impact. Changes to policy or methodologies from the previously approved policy are:

·         Clarity to the interest rate used for annuity calculations. It is recommended that annuity calculations use an interest rate based on the Council’s average rate of all long-term external borrowing. This is a change from the previous methodology, which used a straight 2% interest rate on all charges, regardless of timing of expenditure and asset life. The revised methodology is considered to be a more prudent methodology for provision, as it better represents the Council’s actual cost of borrowing and ensures that any decisions on further capital expenditure are based on the actual cost of borrowing. For histroical expenditure, the revised policy will be applied to the remaninng balance as at 31^st March 2025 for each asset.

·         Clarification on the policy for expenditure which is subject to a capitalisation direction.

It is recommended that this revised policy is applied for the 2025/26 financial year onwards, to ensure that prudent provision is made at the earliest opportunity.

 

 

 

 

 

 

 

 

 

 

The Council is recommended to approve the following MRP Statement for 2025/26 onwards.

For borrowing incurred before 1 April 2008, the MRP policy will be:

·         Annuity basis over a maximum of 40 years.

From borrowing incurred after 1 April 2008, the MRP policy will be:

·         Asset Life Method (annuity method) – MRP will be based on the estimated life of the assets, in accordance with the proposed regulations.  A maximum useful economic life of 50 years for land and 40 years for other assets.  This option will also be applied for any expenditure capitalised under a capitalisation directive.

·         The interest rate to be used for annuity calculations will be the Council’s prevailing average rate of all long-term borrowing as at the 31^st March of the financial year in which the expenditure was incurred.

·         Where the debt relates to expenditure which is subject to a capitalisation direction issued by the government, the council will set aside a sum equivalent to repaying the debt over a period consistent with the nature of the expenditure on an annuity basis for a maximum of period of 20 years in accordance with the Statutory Guidance.

For PFI schemes, leases and closed landfill sites that come onto the Balance Sheet, the MRP policy will be:

·         Asset Life Method (annuity method) - The MRP will be calculated according to the flow of benefits from the asset, and where the principal repayments increase over the life of the asset.  Any related MRP will be equivalent to the “capital repayment element” of the annual charge payable that goes to write down the balance sheet liability.

Expenditure financed by borrowing will not be subject to an MRP charge until the financial year after the expenditure has been incurred, or in the case of assets under construction, MRP will be delayed until the relevant asset becomes operational.

There is the option to charge more than the prudent provision of MRP each year through a Voluntary Revenue Provision (VRP). The cumulative amount of any future VRP will be included in the MRP Policy Statement to enable the Authority to ‘offset’ this against future MRP charges. To date there has been no VRP made by the Authority.

For loans to third parties that are being used to fund expenditure that is classed as capital in nature, the policy will be to charge an MRP over the life of the loan. 

In view of the variety of different types of capital expenditure incurred by the Council, which is not in all cases capable of being related to an individual asset, asset lives will be assessed on a basis which most reasonably reflects the anticipated period of benefit that arises from the expenditure. Also, whatever type of expenditure is involved, it will be grouped together in a manner which reflects the nature of the main component of expenditure. This approach also allows the Council to defer the introduction of an MRP charge for new capital projects/land purchases until the year after the new asset becomes operational rather than in the year borrowing is required to finance the capital spending.

 

 

 

 

 

 

 

 

 

 

 

 

4.    ANNUAL INVESTMENT STRATEGY

The MHCLG and CIPFA have extended the meaning of ‘investments’ to include both financial and non-financial investments. This report deals with financial investments. Non-financial investments are covered in the Capital Strategy.

The Council’s investment policy has regard to the following:

·         MHCLG’s Guidance on Local Government Investments (the “Guidance”)

·         CIPFA Treasury Management in Public Services Code of Practice and Cross Sectoral Guidance Notes 2021 (the “Code”)

·         CIPFA Treasury Management Guidance Notes 2021

The Council’s investment priorities will be the security of capital first, portfolio liquidity second and then yield (return). The Authority will aim to achieve the optimum return (yield) on its investments commensurate with proper levels of security and liquidity and with regard to the Authority’s risk appetite.

  4.1     Annual Investment Strategy for 2026/27

Investments will be made with reference to the core balance and cash flow requirements and the outlook for interest rates.

Greater returns are usually obtainable by investing for longer periods. However, based on the forecast of Bank Rate below and the Councils’ ongoing challenging financial position, it is  considered appropriate to maintain a large degree of liquidity to cover cash flow needs, but to also consider “laddering” investments for periods up to 12 months with high credit rated financial institutions if cash balance allows.

While most cash balances are required in order to manage the ups and downs of cash flow, where cash sums can be identified that could be invested for longer periods, the value to be obtained from longer term investments will be carefully assessed.

·         If it is predicted that Bank Rate is likely to rise significantly within the time horizon being considered, then consideration will be given to keeping most investments on short term or variable terms.

·         Conversely, if it is predicted that Bank Rate is likely to fall within that time period, consideration will be given to locking in the higher rates currently obtainable, for longer periods.

It is currently expected that the Bank Rate will not fall during the remainder of 2025/26, but with the prospect for Bank Rate to be cut further into 2026/27. MUFG Bank Rate forecasts for financial year ends (March) are:

Year	2025/26	2026/27	2027/28	2028/29
Bank Rate	3.75%	3.25%	3.25%	3.25%

 

The MUFG view on the prospect for interest rates, including their forecast for short term investment rates is appended at Annex B.

The primary principle governing the Council’s investment criteria is the security of its investments, although the return on the investment is also a key consideration.  After this main principle, the Council will ensure that:

§  It maintains a policy covering both the categories of investment types it will invest in and the criteria for choosing investment counterparties with adequate security, and monitoring their security;

§  It has sufficient liquidity in its investments;

§  It receives a yield that is aligned with the level of security and liquidity of its investments;

§  Where possible, it actively seeks to support Environmental, Social and Governance (ESG) investment products and institutions that meet all of the above requirements.

The preservation of capital is the Council’s principal and overriding priority.

 

4.1.1     Changes from 2025/26 Strategy

A number of changes are proposed from the 2025/26 the Annual Investment Strategy in response to reducing investment balances and to manage subsequent risks to security and liquidity. 

·         Maximum investment limits on counterparty types been reduced compared to the 2025/26 strategy to avoid over exposure to individual sectors due to reducing investment balances and subsequent risk to overexposure.

·         Limits for investments in individual UK Local Authorities have been reduced from a maximum £60m to £20m per authority to avoid over exposure to individual counterparties, and to manage size of individual investments to manage ongoing liquidity,

·         A reduction in maximum investment limit on some individual counterparties to avoid overexposure.

·         Reduced limits of principal sums to be invested for longer than 365 days to ensure liquidity is maintained,

4.2       Investment Policy – Management of risk

The guidance from the MHCLG and CIPFA place a high priority on the management of risk. This authority has adopted a prudent approach to managing risk and defines its risk appetite by the following means: -

i)     Minimum acceptable credit criteria are applied in order to generate a list of highly creditworthy counterparties.  This also enables diversification and thus avoidance of concentration risk. The key ratings used to monitor counterparties are the short term and long-term ratings.

ii)    Other information: ratings will not be the sole determinant of the quality of an institution; it is important to continually assess and monitor the financial sector on both a micro and macro basis and in relation to the economic and political environments in which institutions operate. The assessment will also take account of information that reflects the opinion of the markets. To achieve this consideration the Council will engage with its advisors to maintain a monitor on market pricing such as “credit default swaps” and overlay that information on top of the credit ratings.

iii)   Other information sources used will include the financial press, share price and other such information pertaining to the banking sector in order to establish the most robust scrutiny process on the suitability of potential investment counterparties.

iv)   This authority has defined the list of types of investment instruments that the treasury management team are authorised to use.

a.    Specified investments are those with a high level of credit quality and subject to a maturity limit of one year. The limits and permitted instruments for specified investments are listed within Table 7.

b.    Non-specified investments are those with less high credit quality, may be for periods in excess of one year, and/or are more complex instruments which require greater consideration by members and officers before being authorised for use. The limits and permitted instruments for non-specified investments are listed within Table 8.

v)    Lending limits (amounts and maturity) for each counterparty will be set through applying the credit criteria matrix (within Table 7).

vi)   This authority will set a limit for the amount of its investments which are invested for longer than 365 days, detailed in the Treasury Indicators in Annex C.

vii)  Investments will only be placed with counterparties from countries with a specified minimum sovereign rating of AA- (see paragraph 4.3).

viii) This authority has engaged external consultants, (see paragraph 5.3), to provide expert advice on how to optimise an appropriate balance of security, liquidity and yield, given the risk appetite of this authority in the context of the expected level of cash balances and need for liquidity throughout the year.

ix)   All investments will be denominated in sterling.

x)    As a result of the change in accounting standards for 2025/26 under IFRS 9, this Authority will consider the implications of investment instruments which could result in an adverse movement in the value of the amount invested and resultant charges at the end of the year to the General Fund.

However, this authority will also pursue value for money in treasury management and will monitor the yield from investment income against appropriate benchmarks for investment performance. Regular monitoring of investment performance will be carried out during the year and included within the quarterly reporting.

 

4.3       Sovereign Credit Ratings

The current approved strategy of lending to sovereign nations and their banks which hold a minimum of AA- remains in place. The proposed  Maximum investment limits and duration periods will remain the same as in the previous strategy at £60 million and one year respectively.  The list of countries that qualify using this credit criteria (as at the date of this report) are shown below:

AAA    Australia, Denmark, Germany, Netherlands, Norway, Singapore, Sweden, Switzerland

AA+   Canada, USA

AA       Abu Dhabi (UAE), Finland,

AA-    United Kingdom   

 

4.4       Creditworthiness Policy

The Council applies the creditworthiness service provided by the MUFG Coroprate Markets. This service employs a sophisticated modelling approach utilising credit ratings from the three main credit rating agencies which is then supplemented with the following overlays:

·         credit watches and credit outlooks from credit rating agencies;

·         credit default swap (CDS) spreads to give early warning of likely changes in credit ratings;

·         sovereign ratings to select counterparties from only the most creditworthy countries.

This weighted scoring system then produces an end product of a series of colour coded bands which indicate the relative creditworthiness of counterparties.  These colour codes are used by the Council to determine the suggested duration for investments. The Council (in addition to other due diligence consideration) will use counterparties within the following durational bands provided they have a minimum A- (UK Banks) and AA- (Non-UK Banks) credit rating:

Typically the minimum credit ratings criteria the Council use will be a Short Term rating (Fitch or equivalents) of   F1 and a Long Term rating of A- for UK Banks. There may be occasions when the counterparty ratings from one rating agency are marginally lower than these ratings but may still be used.  In these instances consideration will be given to the whole range of ratings available, or other topical market information, to support their use.

The primary principle governing the Council’s investment criteria is the security of its investments, although the return on the investment is also a key consideration.  After this main principle, the Council will ensure that:

§  It maintains a policy covering both the categories of investment types it will invest in and the criteria for choosing investment counterparties with adequate security, and monitoring their security;

§  It has sufficient liquidity in its investments. 

All credit ratings are monitored daily. The Council is alerted to changes to ratings of all three agencies through its use of the LAS credit worthiness service.  If a downgrade results in the counterparty or investment scheme no longer meeting the Council’s minimum criteria, its further use as a new investment will be withdrawn immediately.

In addition to the use of credit ratings, the Council is advised of information re movements in Credit Default Swap against the iTraxx benchmark and other market data on a weekly basis. Extreme market movements may result in downgrade of an institution or removal from the Council’s lending list.  The counterparties in which the Council will invest its cash surpluses is based on officer’s assessment of investment security, risk factors, market intelligence, a diverse but manageable portfolio and their participation in the local authority market.

Table 7 below summarises the types of specified investment counterparties available to the Council, and the maximum amount and maturity periods placed on each of these.  A full list of the Council’s counterparties and the current limits for 2026/27 are appended at Annex A.

 

Criteria for Specified Investments

Table 7	Country/ Domicile	Instrument	Min. Credit Criteria/LAS colour band	Max. Amount	Max. maturity period
Debt Management and Deposit Facilities (DMADF)	UK	Term Deposits (TDs)	N/A	£50m (previously unlimited)	6 Months (previously 12 months)
Government Treasury bills	UK	TDs	UK Sovereign Rating	£50m (previously unlimited	6 Months (previously 12 months)
UK Local Authorities*	UK	TDs	UK Sovereign Rating	£20m (previously £60m	12 Months
Banks – part nationalised	UK	§ TDs § Deposits on Notice § Certificates of Deposit (CDs)	N/A	£20m (previously £60m	12 Months
Banks	UK	§ TDs § Deposits on Notice § CDs	Blue	£20m (previously £60m	12 Months
			Orange		12 Months
			Red		6 Months
			Green		100 Days
Building Societies	UK	§ TDs § Deposits on Notice § CDs	Blue	£20m (previously £60m	12 Months
			Orange		12 Months
			Red		6 Months
			Green		100 Days
Individual Money Market Funds (MMF) CNAV and LVNAV	UK/Ireland/ EU domiciled	AAA Rated Money Market Fund Rating	N/A	£60m	Liqiuid
VNAV MMF’s and Ultra Short Dated Bond Funds	UK/Ireland/  EU domiciled	AAA Rated Bond Fund Fund Rating	N/A	£60m	Liquid
Banks – Non-UK	Those with sovereign rating of at least AA-**	§ TDs § Deposits on Notice § CDs	Blue	£20m (previously £60m	12 Months
			Orange		12 Months
			Red		6 Months
			Green		100 Days

* Local Authorities appear on both Specified and Non-specified investment list – an investment with a LA for up to a year is Specified, and between 1-2 years is Non-specified. The maximum amount that can be lent to any single Local Authority is £20m across both specified and unspecified Investments

**See Paragraph 4.3 for full list of countries that meet these criteria

Non-Specified investments are any other types of investment that are not defined as specified. The identification and rationale supporting the selection of these other investments and the maximum limits to be applied are set out in Table 8 below:

 

Table 8	Minimum credit criteria	Maximum investments	Period
UK Local Authorities**	Government Backed	£20m               (previously £60m)	2 years
Corporate Bond Fund(s)	Investment Grade	£30m	2 - 5 years
Pooled Property Fund(s)	N/A	£30m	5+ years
Mixed Asset Fund(s)	N/A	£30m	2 - 5 years
Short Dated Bond Fund(s)	N/A	£30m	2 – 5 years

** Local Authorities appear on both Specified and Non-specified investment list – an investment with a LA for up to a year is Specified, and between 1-2 years is Non-specified. The maximum amount that can be lent to any single Local Authority is £20m across both specified and Unspecified Investments

The maximum amount that can be invested will be monitored in relation to the Council’s surplus monies and the level of reserves. The approved counterparty list will be maintained by referring to an up-to-date credit rating agency reports, and the Council will liaise regularly with brokers for updates. Where Externally Managed Funds are not rated, a selection process will evaluate relative risks & returns. Security of the Council’s money and fund volatility will be key measures of suitability. Counterparties may be added to or removed from the list only with the approval of the Chief Finance Officer. A full list of the Council’s counterparties and the current limits for 2026/27 are appended at Annex A.

4.5       Investment Risk Benchmarking

The weighted average benchmark risk factor for 2026/27 is recommended to be 0.05%. This is unchanged from 2025/26. This is a measure of the percentage of the portfolio deemed to be at risk of loss by reference to the maturity date, value of investment, and credit rating of the individual investments within the portfolio compared to the historic default data for those credit ratings.

This benchmark is a simple target (not limit) to measure investment risk and so may be breached from time to time, depending on movements in interest rates and counterparty criteria. The purpose of the benchmark is that the in-house treasury team can monitor the current and trend position and amend the operational strategy depending on any changes. Any breach of the benchmarks will be reported with supporting reasons in the mid-year or end of year reviews.

This matrix will only cover internally managed investments, excluding externally managed cash that has been subject to an individual selection process. It also excludes funds lend to other Local Authorities, consistent with the CIPFA Accounting Code.

4.6       Investment Performance Benchmarking

The performance of the Council’s investment portfolio will be measured against the overnight SONIA Rate.

 

 

 

 

 

 

 

 

 

5.   OTHER TREASURY ISSUES

 

5.1       Banking Services

NatWest currently provides banking services for the Council.

5.2       Training

The CIPFA Treasury Management Code requires the responsible officer to ensure that members with responsibility for treasury management receive adequate training in treasury management.  This especially applies to members responsible for scrutiny. 

The scale and nature of this will depend on the size and complexity of the organisation’s treasury management needs.  Organisations should consider how to assess whether treasury management staff and board/ Council members have the required knowledge and skills to undertake their roles and whether they have been able to maintain those skills and keep them up to date.

As a minimum, authorities should carry out the following to monitor and review knowledge and skills:

·         Record attendance at training and ensure action is taken where poor attendance is identified.

·         Prepare tailored learning plans for treasury management officers and board/Council members.

·         Require treasury management officers and board/Council members to undertake self-assessment against the required competencies (as set out in the schedule that may be adopted by the organisation).

·         Have regular communication with officers and board/Council members, encouraging them to highlight training needs on an ongoing basis.”

In further support of the revised training requirements, CIPFA’s Better Governance Forum and Treasury Management Network have produced a ‘self-assessment by members responsible for the scrutiny of treasury management’, which is available from the CIPFA website to download.

The training needs of treasury management officers are periodically reviewed.

A formal record of the training received by officers central to the Treasury function and members who are responsible for decision making and scrutiny of the Treasury function will be maintained by the Principal Accountant (Treasury).  

5.3       Policy on the use of External Service Providers

The Council uses MUFG as its external treasury management advisors.

The Council recognises that responsibility for treasury management decisions remains with the Council at all times and will ensure that undue reliance is not placed upon our external service providers. It also recognises that there is value in employing external providers of treasury management services in order to acquire access to specialist skills and resources. The Council will ensure that the terms of their appointment and the methods by which their value will be assessed are properly agreed, documented and subject to regular review.

5.4       Lending to Third Parties

The Council has the power to lend monies to third parties subject to a number of criteria. These are not treasury type investments rather they are policy investments. Any activity will only take place after relevant due diligence has been undertaken.

5.5       Updates to Accounting Requirements

§  IFRS9 – local authority override – English local authorities

The MHCLG has extended the IFRS 9 statutory override to apply to existing local authority investments in pooled investment funds that were made before 1st April 2024.  The government has extended this specific override for these existing investments until 1st April 2029, to provide local authorities with additional time to manage their investment strategies. 

 

However, any new investments in pooled investment funds made on or after 1st April 2024 are subject to the standard IFRS 9 accounting requirements, meaning fair value movements must be recognised directly in the general fund. The override prevents these "paper" fluctuations from immediately impacting the authority’s revenue accounts and annual balanced budget requirement. 

 

Additionally, IFRS9 impacts the write-down in the valuation of impaired loans.

 

§   IFRS 16 – Leasing

The CIPFA LAASAC Local Authority Accounting Code Board has deferred implementation of IFRS16 until 1.4.24, the 2024/25 financial year. Once implemented, this has the following impact to the Treasury Management Strategy:

·           The MRP Policy sets out how MRP will be applied for leases bought onto the balance sheet. Where a lease (or part of a lease) is brought onto the balance sheet, having previously been accounted for off-balance sheet, the MRP requirement is regarded as having been met by the inclusion in the charge for the year in which the restatement occurs, of an amount equal to the write-down for that year plus retrospective writing down of the balance sheet liability that arises from the restatement;

·           The Council’s Capital Financing Requirement authorised limit and operational boundary expectations for 2025/26 onwards have been increased to reflect the estimated effect of this change.

 

ANNEX A

COUNTERPARTY LIST 2026/27

Bank with duration colour

Country

Fitch Ratings

Moody’s Ratings

S & P Ratings

ESCC Duration

MUFG Duration Limit

Money Limit

Specified Investments:

L Term

S Term

Viab.

Supp.

L Term

S Term

L Term

S Term

(Months)

(Months)

(£m)

UK Counterparties:

Lloyds Bank PLC (RFB)

UK

AA-

F1+

a+

WD

A1

P-1

A+

A-1

12

12

20

Lloyds Bank Corporate Markets Plc (NRFB)

UK

AA-

F1+

-

WD

A1

P-1

A

A-1

12

12

Bank of Scotland PLC (RFB)

UK

AA-

F1+

a+

WD

A1

P-1

A+

A-1

12

12

NatWest Bank (RFB)

UK

AA-

F1+

a+

WD

A1

P-1

A+

A-1

12

12

20

NatWest Markets Plc (NRFB)

UK

AA-

F1+

WD

WD

A1

P-1

A

A-1

12

12

Royal Bank of Scotland (RFB)

UK

AA-

F1+

a+

WD

A1

P-1

A+

A-1

12

12

HSBC UK Bank (RFB)

UK

AA-

F1+

a+

WD

Aa3

P-1

A+

A-1

12

12

20

HSBC Bank (NRFB)

UK

AA-

F1+

a

WD

A1

P-1

A+

A-1

12

12

Barclays Bank UK (RFB)

UK

A+

F1

a

WD

A1

P-1

A+

A-1

6

6

20

Barclays Bank (NRFB)

UK

A+

F1

a

WD

A1

P-1

A+

A-1

6

6

Santander UK

UK

A+

F1

a

WD

A1

P-1

A

A-1

6

6

20

Santander Financial Services (NRFB)

UK

A+

F1

-

WD

A1

P-1

A-

A-2

6

6

Goldman Sachs International Bank

UK

A+

F1

-

WD

A1

P-1

A+

A-1

6

6

20

Handelsbanken PLC

UK

AA

F1+

-

WD

-

-

AA-

A-1+

12

12

20

SMBC Bank International Plc

UK

A-

F1

-

WD

A1

P-1

A

A-1

6

6

20

Standard Chartered Bank

UK

A+

F1

a

WD

A1

P-1

A+

A-1

6

6

20

Clydesdale Bank PLC

UK

A

F1

a

WD

A1

P-1

A+

A-1

6

6

20

Nationwide Building Society

UK

A

F1

a

WD

A1

P-1

A+

A-1

6

6

20

Non UK Counterparties:

Royal Bank of Canada

Canada

AA-

F1+

aa-

WD

Aa1

P-1

AA-

A-1+

12

12

20

Toronto-Dominion Bank

Canada

AA-

F1+

aa-

WD

Aa1

P-1

A+

A-1

12

12

20

Nordea Bank Abp

Finland

AA-

F1+

aa-

WD

Aa2

P-1

AA-

A-1+

12

12

20

NRW.BANK

Germany

AAA

F1+

-

WD

Aa1

P-1

AA

A-1+

12

24

20

Landwirtschaftliche Rentenbank

Germany

AAA

F1+

-

WD

Aaa

P-1

AAA

A-1+

12

24

20

BNG Bank N.V.

Netherlands

AAA

F1+

-

WD

Aaa

P-1

AAA

A-1+

12

24

20

DBS Bank Ltd.

Singapore

AA-

F1+

aa-

WD

Aa1

P-1

AA-

A-1+

12

12

20

Oversea-Chinese Banking Corp. Ltd.

Singapore

AA-

F1+

aa-

WD

Aa1

P-1

AA-

A-1+

12

12

20

United Overseas Bank Ltd.

Singapore

AA-

F1+

aa-

WD

Aa1

P-1

AA-

A-1+

12

12

20

Svenska Handelsbanken AB

Sweden

AA

F1+

aa

WD

Aa2

P-1

AA-

A-1+

12

12

20

First Abu Dhabi Bank PJSC

UAE

AA-

F1+

a-

WD

Aa3

P-1

AA-

A-1+

12

12

20

Bank of New York Mellon

USA

AA

F1+

aa-

WD

Aa1

P-1

AA-

A-1+

12

24

20

Non-Specified Investments:

Minimum Credit Criteria

Maximum Investments

Period

UK Local Authorities

Government Backed

£20m

2 years

Corporate Bond Fund(s)

Investment Grade

£30m

2 – 5 years

Pooled Property Fund(s)

N/A

£30m

5+ years

Mixed Asset Fund(s)

N/A

£30m

2 - 5 years

Short Dated Bond Fund(s)

N/A

£30m

2 - 5 years

                                                           

ANNEX B

ECONOMIC OVERVIEW – TO BE UPDATED FOR LATEST OVERVIEW

Provided by MUFG, December 2025

·           The first half of 2025/26 saw:

-       A 0.3% pick up in GDP for the period April to June 2025. More recently, the economy flatlined in July, with higher taxes for businesses restraining growth, but picked up to 0.1% m/m in August before falling back by 0.1% m/m in September.

-       The 3m/yy rate of average earnings growth excluding bonuses has fallen from 5.5% to 4.6% in September.

-       CPI inflation has ebbed and flowed but finished September at 3.8%, whilst core inflation eased to 3.5%.

-       The Bank of England cut interest rates from 4.50% to 4.25% in May, and then to 4% in August (and subsequently to 3.75% in December).

-       The 10-year gilt yield fluctuated between 4.4% and 4.8%, ending the half year at 4.70% (before falling back to 4.43% in early November).

·           From a GDP perspective, the financial year got off to a bumpy start with the 0.3% m/m fall in real GDP in April as front-running of US tariffs in Q1 (when GDP grew 0.7% on the quarter) weighed on activity. Despite the underlying reasons for the drop, it was still the first fall since October 2024 and the largest fall since October 2023. However, the economy surprised to the upside in May and June so that quarterly growth ended up 0.3% q/q (subsequently revised down to 0.2% q/q). Nonetheless, the 0.0% m/m change in real GDP in July, followed by a 0.1% m/m increase in August and a 0.1% decrease in September will have caused some concern.  GDP growth for 2025 - 2028 is currently forecast by the Office for Budget Responsibility to be in the region of 1.5%.

·           Sticking with future economic sentiment, the composite Purchasing Manager Index (PMI) for the UK increased to 52.2 in October.  The manufacturing PMI output balance improved to just below 50 but it is the services sector (52.2) that continues to drive the economy forward.  Nonetheless, the PMIs suggest tepid growth is the best that can be expected in the second half of 2025 and the start of 2026.  Indeed, on 13 November we heard that GDP for July to September was only 0.1% q/q.

·           Turning to retail sales volumes, and the 1.5% year-on-year rise in September, accelerating from a 0.7% increase in August, marked the highest gain since April. On a monthly basis, retail sales volumes rose 0.5%, defying forecasts of a 0.2% fall, following an upwardly revised 0.6% gain in August. Household spending remains surprisingly resilient, but headwinds are gathering.

·           Prior to the November Budget, the public finances position looked weak.  The £20.2 billion borrowed in September was slightly above the £20.1 billion forecast by the OBR.  For the year to date, the £99.8 billion borrowed is the second highest for the April to September period since records began in 1993, surpassed only by borrowing during the COVID-19 pandemic.  The main drivers of the increased borrowing were higher debt interest costs, rising government running costs, and increased inflation-linked benefit payments, which outweighed the rise in tax and National Insurance contributions. 

·           Following the 26 November Budget, the Office for Budget Responsibility (OBR) calculated the net tightening in fiscal policy as £11.7bn (0.3% of GDP) in 2029/30, smaller than the consensus forecast of £25bn. It did downgrade productivity growth by 0.3%, from 1.3% to 1.0%, but a lot of that influence was offset by upgrades to its near-term wage and inflation forecasts. Accordingly, the OBR judged the Chancellor was going to achieve her objectives with £4.2bn to spare. The Chancellor then chose to expand that headroom to £21.7bn, up from £9.9bn previously.

·           Moreover, the Chancellor also chose to raise spending by a net £11.3bn in 2029/30. To pay for that and the increase in her headroom, she raised taxes by £26.1bn in 2029/30.  The biggest revenue-raisers were the freeze in income tax thresholds from 2028/29 (+£7.8bn) and the rise in NICs on salary-sacrifice pension contributions (+£4.8bn). The increase in council tax for properties worth more than £2.0m will generate £0.4bn.

·           The weakening in the jobs market looked clear in the spring. May’s 109,000 m/m fall in the PAYE measure of employment was the largest decline (barring the pandemic) since the data began and the seventh in as many months. The monthly change was revised lower in five of the previous seven months too, with April’s 33,000 fall revised down to a 55,000 drop. More recently, however, the monthly change was revised higher in seven of the previous nine months by a total of 22,000. So instead of falling by 165,000 in total since October, payroll employment is now thought to have declined by a smaller 153,000. Even so, payroll employment has still fallen in nearly all the months since the Chancellor announced the rises in National Insurance Contributions (NICs) for employers and the minimum wage in the October 2024 Budget. The number of job vacancies in the three months to November 2025 stood at 729,000 (the peak was 1.3 million in spring 2022). All this suggests the labour market continues to loosen, albeit at a slow pace.

·           A looser labour market is driving softer wage pressures. The 3m/yy rate of average earnings growth excluding bonuses has fallen from 5.5% in April to 4.6% in September (still at that level in November). The rate for the private sector has slipped just below 4% as the year end approaches.

·           CPI inflation remained at 3.8% in September but dropped to 3.2% by November.  Core inflation also fell to 3.2% by November while services inflation fell to 4.4%. Nonetheless, a further loosening in the labour market and weaker wage growth may be a requisite to UK inflation coming in below 2.0% by 2027. 

·           An ever-present issue throughout recent months has been the pressure being exerted on medium and longer dated gilt yields. The yield on the 10-year gilt moved sideways in the second quarter of 2025, rising from 4.4% in early April to 4.8% in mid-April following wider global bond market volatility stemming from the “Liberation Day” tariff announcement, and then easing back as trade tensions began to de-escalate. By the end of April, the 10-year gilt yield had returned to 4.4%. In May, concerns about stickier inflation and shifting expectations about the path for interest rates led to another rise, with the 10-year gilt yield fluctuating between 4.6% and 4.75% for most of May. Thereafter, as trade tensions continued to ease and markets increasingly began to price in looser monetary policy, the 10-year yield edged lower, and ended June at 4.50%.

·           More recently, the yield on the 10-year gilt rose from 4.46% to 4.60% in early July as rolled-back spending cuts and uncertainty over Chancellor Reeves’ future raised fiscal concerns. Although the spike proved short lived, it highlighted the UK’s fragile fiscal position. In an era of high debt, high interest rates and low GDP growth, the markets are now more sensitive to fiscal risks than before the pandemic. During August, long-dated gilts underwent a particularly pronounced sell-off, climbing 22 basis points and reaching a 27-year high of 5.6% by the end of the month. While yields have since eased back, the market sell-off was driven by investor concerns over growing supply-demand imbalances, stemming from unease over the lack of fiscal consolidation and reduced demand from traditional long-dated bond purchasers like pension funds. For 10-year gilts, by late September, sticky inflation, resilient activity data and a hawkish Bank of England kept yields elevated over 4.70% although by late December had fallen back again to a little over 4.50%.

·           The FTSE 100 fell sharply following the “Liberation Day” tariff announcement, dropping by more than 10% in the first week of April - from 8,634 on 1 April to 7,702 on 7 April. However, the de-escalation of the trade war coupled with strong corporate earnings led to a rapid rebound starting in late April. As a result, the FTSE 100 ended June at 8,761, around 2% higher than its value at the end of March and more than 7% above its level at the start of 2025. Since then, the FTSE 100 has enjoyed a further 4% rise in July, its strongest monthly gain since January and outperforming the S&P 500. Strong corporate earnings and progress in trade talks (US-EU, UK-India) lifted share prices and the index hit a record 9,321 in mid-August, driven by hopes of peace in Ukraine and dovish signals from Fed Chair Powell. September proved more volatile and the FTSE 100 closed September at 9,350, 7% higher than at the end of Q1 and 14% higher since the start of 2025. Future performance will likely be impacted by the extent to which investors’ global risk appetite remains intact, Fed rate cuts, resilience in the US economy, and AI optimism. A weaker pound will also boost the index as it inflates overseas earnings.  In early November, the FTSE100 climbed to a record high just above 9,900.  By late December, the index had clung on to most of those gains standing at 9,870 on 23 December.

MPC meetings: 8 May, 19 June, 7 August, 18 September, 6 November, 18 December 2025

·           There were six Monetary Policy Committee (MPC) meetings held between April and December. In May, the Committee cut Bank Rate from 4.50% to 4.25%, while in June policy was left unchanged. In June’s vote, three MPC members (Dhingra, Ramsden and Taylor) voted for an immediate cut to 4.00%, citing loosening labour market conditions. The other six members were more cautious, as they highlighted the need to monitor for “signs of weak demand”, “supply-side constraints” and higher “inflation expectations”, mainly from rising food prices. By repeating the well-used phrase “gradual and careful”, the MPC continued to suggest that rates would be reduced further.

·           In August, a further rate cut was implemented.  However, a 5-4 split vote for a rate cut to 4% laid bare the different views within the Monetary Policy Committee, with the accompanying commentary noting the decision was “finely balanced” and reiterating that future rate cuts would be undertaken “gradually and carefully”.  Ultimately, Governor Bailey was the casting vote for a rate cut but with the CPI measure of inflation expected to reach at least 4% later this year, the MPC was wary of making any further rate cuts until inflation begins its slow downwards trajectory back towards 2%.

·           With wages still rising by just below 5%, it was no surprise that the September meeting saw the MPC vote 7-2 for keeping rates at 4% (Dhingra and Taylor voted for a further 25bps reduction).  Moreover, the Bank also took the opportunity to announce that they would only shrink its balance sheet by £70bn over the next 12 months, rather than £100bn. The repetition of the phrase that “a gradual and careful” approach to rate cuts is appropriate suggested the Bank still thought interest rates will fall further.

·           At the 6 November meeting, Governor Bailey was once again the deciding vote, keeping Bank Rate at 4% but hinting strongly that a further rate cut was imminent if data supported such a move.  By 18 December, with November CPI inflation having fallen to 3.2%, and with Q2 GDP revised down from 0.3% q/q to only 0.2% q/q, and Q3 GDP stalling at 0.1%, the MPC voted by 5-4 to cut rates further to 3.75%.  However, Governor Bailey made it clear that any further reductions would require strong supporting data, and the pace of any further decreases would be slow compared to recent months.  The markets expect Bank Rate to next be cut in April. 

PWLB RATES 01.04.25 - 30.09.25

HIGH/LOW/AVERAGE PWLB RATES FOR 01.04.25 – 30.09.25

	1 Year	5 Year	10 Year	25 Year	50 Year
01/04/2025	4.82%	4.94%	5.38%	5.95%	5.63%
30/09/2025	4.58%	4.95%	5.53%	6.23%	5.98%
Low	4.36%	4.62%	5.17%	5.78%	5.46%
Low Date	04/08/2025	02/05/2025	02/05/2025	04/04/2025	04/04/2025
High	4.84%	4.99%	5.62%	6.41%	6.14%
High Date	02/04/2025	21/05/2025	03/09/2025	03/09/2025	03/09/2025
Average	4.55%	4.82%	5.40%	6.11%	5.83%
Spread	0.48%	0.37%	0.45%	0.63%	0.68%

 

Prospects for Interest Rates

The Authority has appointed MUFG Corporate Markets as its treasury advisor and part of their service is to assist the Authority to formulate a view on interest rates. MUFG Corporate Markets provided the following forecasts on 22 December 2025.  These are forecasts for Bank Rate, average earnings and PWLB certainty rates, gilt yields plus 80 bps. 

MUFG Interest Rate View 22.12.25
	Mar-26	Jun-26	Sep-26	Dec-26	Mar-27	Jun-27	Sep-27	Dec-27	Mar-28	Jun-28	Sep-28	Dec-28	Mar-29
BANK RATE	3.75	3.50	3.50	3.25	3.25	3.25	3.25	3.25	3.25	3.25	3.25	3.25	3.25
3 month ave earnings	3.80	3.50	3.50	3.30	3.30	3.30	3.30	3.30	3.30	3.30	3.30	3.30	3.30
6 month ave earnings	3.80	3.50	3.50	3.40	3.30	3.30	3.30	3.40	3.40	3.40	3.40	3.40	3.40
12 month ave earnings	3.90	3.60	3.60	3.50	3.40	3.50	3.50	3.50	3.50	3.50	3.60	3.60	3.60
5 yr PWLB	4.60	4.50	4.30	4.20	4.10	4.10	4.10	4.10	4.10	4.10	4.10	4.10	4.10
10 yr PWLB	5.20	5.00	4.90	4.80	4.80	4.70	4.70	4.70	4.70	4.60	4.60	4.60	4.70
25 yr PWLB	5.80	5.70	5.60	5.50	5.50	5.40	5.30	5.30	5.30	5.20	5.20	5.20	5.20
50 yr PWLB	5.60	5.50	5.40	5.30	5.30	5.20	5.10	5.10	5.10	5.00	5.10	5.00	5.00

·           Our last interest rate forecast update was undertaken on 11 August.  Since then, a combination of tepid growth (0.2% q/q GDP for Q2 and 0.1% q/q GDP for Q3), falling inflation (currently CPI is 3.2%), and a November Budget that will place more pressure on the majority of households’ income, has provided an opportunity for the Bank of England’s Monetary Policy Committee to further reduce Bank Rate from 4% to 3.75% on 18 December.

·           Surprisingly, to most market commentators, the recent steep fall in CPI inflation in one month from 3.6% to 3.2% did not persuade most “dissenters” from the November vote (Lombardelli, Greene, Mann and Pill) to switch to the rate-cutting side of the Committee.  Instead, it was left to Bank Governor, Andrew Bailey, to use his deciding vote to force a rate cut through by the slimmest of margins, 5-4.

·           Given the wafer-thin majority for a rate cut it was not unexpected to hear that although rates would continue on a “gradual downward path”, suggesting a further rate cut or cuts in the offing, MPC members want to assess incoming evidence on labour market activity and wage growth.  Indeed, with annual wage growth still over 4.5%, the MPC reiterated that the case for further rate cuts would be “a closer call”, and Governor Bailey observed there is “limited space as Bank Rate approaches a neutral level”.

·           Accordingly, the MUFG Corporate Markets forecast has been revised to price in a rate cut in Q2 2026 to 3.5%, likely to take place in the wake of a significant fall in the CPI inflation reading from 3% in March to 2% in April (as forecast by Capital Economics), followed by a short lull through the summer whilst more data is garnered, and then a further rate cut to 3.25% in Q4.

·           As in August, nonetheless, threats to that central scenario abound.  What if wage increases remain stubbornly high?  There are, after all, several sectors of the domestic economy, including social care provision and the building/construction industries, where staff shortages remain severe.  Moreover, by May 2026, following the local elections, we will have a better handle on whether or not the Starmer/Reeves team is going to see out the current Parliament or whether they face a Leadership challenge from within their own party  If so, how will gilt markets react to these variables…and will there be additional geo-political factors to also bake in, particularly the Fed’s monetary policy decisions in 2026 and the ongoing battle to lower rates whilst inflation remains close to 3%.  

·           Accordingly, our updated central forecast is made with several hefty caveats.  We are confident, as we have been for some time, that our forecast for Bank Rate and the 5-year PWLB Certainty Rate is robust, and we have marginally brought forward the timing of the next rate cut(s).  But for the 10-, 25- and 50-years part of the curve, the level of gilt issuance, and the timing of its placement, will be integral to achieving a benign trading environment.  That is not a “given”, and additionally, the inflation outlook and political factors domestically and, crucially, in the US, are also likely to hold sway.  Matters should be clearer by June in the UK, but the US mid-term elections are scheduled for November.

·           Our revised PWLB rate forecasts are based on the Certainty Rate (the standard rate minus 20 bps) which has been accessible to most authorities since 1 November 2012.  Please note, the lower Housing Revenue Account (HRA) PWLB rate started on 15 June 2023 for those authorities with an HRA (standard rate minus 60 bps) and is set to prevail until at least the end of March 2026.  Hopefully, there will be a further extension to this discounted rate announced in January.

·           Money market yield forecasts are based on expected average earnings by local authorities for 3 to 12 months.

Gilt yields and PWLB rates

The overall longer-run trend is for gilt yields and PWLB rates to fall back over the timeline of our forecasts, but the risks to our forecasts are generally to the upsides.  Our target borrowing rates are set two years forward (as we expect rates to fall back) and the current PWLB (certainty) borrowing rates are set out below: -

PWLB debt	Current borrowing rate as at 22.12.25 p.m.	Target borrowing rate now (end of Q4 2027)	Target borrowing rate previous (end of Q4 2027)
5 years	4.81%	4.10%	4.20%
10 years	5.39%	4.70%	4.70%
25 years	6.01%	5.30%	5.30%
50 years	5.78%	5.10%	5.10%

Borrowing advice: Our long-term (beyond 10 years) forecast for the neutral level of Bank Rate remains at 3.5%.  As all PWLB certainty rates are still above this level, borrowing strategies will need to be reviewed in that context.  Overall, better value can be obtained at the shorter end of the curve (<5 years PWLB maturity/<10 years PWLB EIP) and short-dated fixed LA to LA monies should also be considered. Temporary borrowing rates will, generally, fall in line with Bank Rate cuts.

Our suggested budgeted earnings rates for investments up to about three months’ duration in each financial year are set out below. 

We will continue to monitor economic and market developments as they unfold. Typically, we formally review our forecasts following the quarterly release of the Bank of England’s Monetary Policy Report but will consider our position on an ad hoc basis as required.

Our interest rate forecast for Bank Rate is in steps of 25 bps, whereas PWLB forecasts have been rounded to the nearest 10 bps and are central forecasts within bands of + / - 25 bps. Naturally, we continue to monitor events and will update our forecasts as and when appropriate.

 

ANNEX C

PRUDENTIAL AND TREASURY INDICATORS 2026/27 to 2028/29

 

The Council’s capital expenditure plans are a key driver of treasury management activities. The output of the capital expenditure plans is reflected in prudential indicators. Local Authorities are required to ‘have regard to’ the Prudential Code and to set Prudential Indicators for the next three years to ensure that the Council’s capital investment plans are affordable, prudent and sustainable. The Code sets out the indicators that must be used but does not suggest limits or ratios as these are for the authority to set itself.

 

The Prudential Indicators for 2026/27 to 2028/29 are set out in Table A below:

 

Table A – Capital Expenditure and Borrowing Plans	2026/27 Estimate	2027/28 Estimate	2028/29 Estimate
Capital Expenditure £m (gross) Council’s capital expenditure plans	£102m	£72m	£60m
Capital Financing Requirement for Capital Programme £m* Measures the underlying need to borrow for capital purposes (including PFI & Leases)	£410m	£406m	£392m
Capitalisation Direction £m (gross) Council’s application to borrowing for revenue expenditure	£70m	£0m	£0m
Capital Financing Requirement for Capitalisation Direction £m* Measures the underlying need to borrow for capitalisation direction	£70m	£67m	£64m

*The CFR includes an estimate for leases that will be bought onto the balance sheet under a change in leasing accounting regulations. Where it may not be currently possible to be precise about such adjustment figures until detailed data gathering has been substantially completed at the end of the 2024/25 financial year, the impact on the Capital Financing Requirement includes initial estimates of the likely effect of this change, and these indicators may need to be amended mid-year once the detailed impact is known.

 

Table B – Ration of Financing Cost to Net Revenue Stream	2026/27 Estimate	2027/28 Estimate	2028/29 Estimate
Ratio of financing costs to net revenue stream (Capital Programme) ** Identifies the trend in the cost of capital programme (borrowing and other long term obligation costs) against net revenue stream	3.08%	3.38%	3.33%
Ratio of financing costs to net revenue stream (Capitalisation Direction) ** Identifies the cost of capitalisation direction (borrowing and other long term obligation costs) against net revenue stream	0.29%	1.00%	0.98%
Ratio of financing costs to net revenue stream (Total) ** Identifies the trend in the total cost of capital (borrowing and other long term obligation costs) against net revenue stream	3.37%	4.38%	4.31%

** the ratio of financing costs to net revenue stream illustrates the percentage of the Council’s net revenue budget being used to finance the Council’s borrowing. This includes interest costs relating to the Council’s borrowing portfolio and MRP. allowable under the 2021 Code, and therefore the ratio is higher than previously reported.

The Treasury Management Code requires that Local Authorities set a number of indicators for treasury performance in addition to the Prudential Indicators which fall under the Prudential Code.  The Treasury Indicators for 2026/27 to 2028/29 are set out in Tables C & D below. These have been calculated and determined by Officers in compliance with the Treasury Management Code of Practice.:

 

Table C	2026/27 Estimate	2027/28 Estimate	2028/29 Estimate
Authorised Limit for External Debt £m* The Council is expected to set a maximum authorised limit for external debt. This represents a limit beyond which external debt is prohibited, and this limit needs to be set or revised by Full Council.	£510m	£510m	£533m
Operational boundary for external debt £m* The Council is required to set an operational boundary for external debt. This is the limit which external debt is not normally expected to exceed. This indicator may be breached temporarily for operational reasons.	£490m	£490m	£513m
Principal Sums invested for longer than 365 days	£30m (previously £60m)	£30m (previously £60m)	£30m (previously £60m)
Control on interest rate exposure: Upper limit for fixed interest rate exposure Identifies a maximum limit for fixed interest rates for borrowing and investments.	100%	100%	100%
Control on interest rate exposure: Upper limit for variable interest rate exposure Identifies a maximum limit for variable interest rates for borrowing and investments.	15%	15%	15%

 

*The Authorised Limit and Operational Boundary includes an estimate for leases that will be bought onto the balance sheet under a change in leasing accounting regulations under IFRS16. Where it may not be currently possible to be precise about such adjustment figures until detailed data gathering has been substantially completed at the end of the 2024/25 financial year, the impact on the Authority Limit and Operational Boundary includes initial estimates of the likely effect of this change, and these indicators may need to be amended mid-year once the detailed impact is known.

The Authorised Limit and Operational Boundary also include provision for applied capitalisation direction in 2026/27 and assumed additional borrowing in future years to fund the MTFP deficit position.

 

Table D – Maturity Structure of fixed interest rate borrowing The Council needs to set upper and lower limits with respect to the maturity structure of its borrowing.
	Lower	Upper
Under 12 months	0%	40% (previously 25%)
12 months to 2 years	0%	50% (previously 40%)
2 years to 5 years	0%	60%
5 years to 10 years	0%	70%
Over 10 years	0%	90%

 

 

 

 

 

 

ANNEX D

SCHEME OF DELEGATION

 

1.         Full Council

In line with best practice, Full Council is required to receive and approve, as a minimum, three main reports each year, which incorporate a variety of polices, estimates and actuals. These reports are:

              i.        Treasury Management Policy and Strategy Report

The report covers:

§  the capital plans (including prudential indicators);

§  the Capital Strategy;

§  a Minimum Revenue Provision Policy (how residual capital expenditure is charged to revenue over time);

§  the Treasury Management Strategy (how the investments and borrowings are to be organised) including treasury indicators; and

§  an investment strategy (the parameters on how investments are to be managed).

 

            ii.        A Mid-Year Review Report and a Year End Stewardship Report

These will update members with the progress of the capital position, amending prudential indicators as necessary, and indicating whether the treasury strategy is meeting the strategy or whether any policies require revision. The report also provides details of a selection of actual prudential and treasury indicators and actual treasury operations compared to the estimates within the strategy.

 

2.         Cabinet

§  Recommendation of the Treasury Management Strategy to Full Council

§  Approval of the Treasury Management quarterly update reports;

§  Approval of the Treasury Management  mid-year and outturn reports. 

 

3.         Audit Committee

§  Scrutiny of performance against the strategy.

 

4.         Role of the Section 151 Officer

The Section 151 (responsible) Officer:

§  recommending clauses, treasury management policy/practices for approval, reviewing the same regularly, and monitoring compliance;

§  submitting regular treasury management policy reports;

§  submitting budgets and budget variations;

§  receiving and reviewing management information reports;

§  reviewing the performance of the treasury management function;

§  ensuring the adequacy of treasury management resources and skills, and the effective division of responsibilities within the treasury management function;

§  ensuring the adequacy of internal audit, and liaising with external audit;

§  recommending the appointment of external service providers.

There are further responsibilities for the S151 Officer identified within the 2017 Code in respect of non-financial investments. They are identified and listed in the Capital Strategy where relevant.

ANNEX E

INVESTMENT PRODUCT GLOSSARY

 

 

Bank / Building Society: Accounts, deposits, certificates of deposit and senior unsecured bonds with banks and building societies, other than multilateral development banks. These investments are subject to the risk of credit loss via a bail-in should the regulator determine that the bank is failing or likely to fail.

 

Bank / Building Society Secured (Covered Bonds): These investments are secured on the bank’s assets, which limit the potential losses in the unlikely event of insolvency, and means that they are exempt from bail-in.

 

Corporate Bonds: Bonds issued by companies other than banks and registered providers. These investments are not subject to bail-in but are exposed to the risk of the company going insolvent.

 

Enhanced Cash / Ultra Short Dated Bond Funds: Funds designed to produce an enhanced return over and above a Money Market Fund. The manager may use a wider range of alternative options to try and generate excess performance. These could include different counterparties, instruments as well as longer dated investments.

 

Equity Fund:Equity funds are pooled investment vehicles that will focus investments primarily in UK equities.

 

Government: Loans, bonds and bills issued or guaranteed by UK government, local authorities and supranational banks. These investments are not subject to bail-in, and there is a minimal risk of insolvency.

  

Money Market Funds: An open ended fund that invests in short term debt securities, offers same-day liquidity and very low volatility.

 

Mixed Asset Funds: Rather than focus on a particular asset class, these funds will look to invest across a broader range of classes in an effort to provide investors with a smoother performance on a year-to-year basis. Primarily, the asset classes will be equities and fixed income, but the latter will include both corporate and government-level investments.

 

Pooled Property Funds: Shares in diversified property investment vehicles. Property funds offer enhanced returns over the longer term but are more volatile in the short term. The funds have no defined maturity date, but are available for withdrawal after a notice period

 

Short Dated Bond Funds: Funds designed to produce an enhanced return over and above an Ultra Short Dated Fund. The manager may use a wider range of alternative options to try and generate excess performance. These could include different counterparties, instruments as well as longer dated and a proportion of lower rated investments. The return on the funds are typically much higher but can be more volatile than Ultra-Short Dated bond funds, so a longer investment time horizon is recommended.

 

 

ANNEX F

LOCAL GOVERNMENT OUTLOOK

 

Since the Autumn Budget Statement on 26 November, which was accompanied by new national economic forecasts from The Office for Budget Responsibility (OBR), there have been further developments in the economic outlook. Latest figures from the Office for National Statistics showed that the economy shrank unexpectedly by 0.1% in October 2025,. Inflation, as measured by the Consumer Prices Index (CPI) fell further than expected to 3.2% in the year to November 2025, down from 3.6% in October. The Bank of England cut interest rates from 4% to 3.75% in December, the lowest level since February 2023, following the sharper than expected fall in inflation, but indicated that any further reductions were likely to be gradual.

 

The Government published the first multi‑year Local Government Finance Settlement in a decade on 17 December 2025, consulting on provisional allocations for 2026/27 to 2028/29. Core Spending Power (CSP) is projected to rise nationally, underpinned by assumptions that councils take the maximum referendum‑free Council Tax increases, which were confirmed as 5% (comprising of 3% core services and an additional 2% ASC precept).

 

The settlement implements the Fair Funding Review 2.0 (FFR 2.0) reforms, moving to a Fair Funding Assessment (FFA) that simplifies grant funding, updates both needs assessments for each authority and the calculation of the council tax adjustment, and maintains existing council tax flexibility. The updates to formulae emphasise linking funding to deprivation and need, while transitional arrangements have been put in place to help councils who will see a loss of grant funding over the settlement period.

While the Government highlights a fairer, evidence‑led system, that results in a closer relationship with, impacts are uneven across the sector, with cash‑flat or real‑terms reductions for some authorities once council tax is excluded.

For ESCC, CSP increases by 11% over the settlement period, compared with an average of all English councils of 15.1%. This increase assumes ESCC will increase council tax by the maximum of 5% in all years. Non‑council tax CSP reduces by 5.8% by 2028/29, with the change in grant funding cash‑neutral between 2025/26 and 2026/27 (a real‑terms cut given current inflation).  

This loss of funding is driven by several key factors in the new funding methodology: the impact of council tax equalisation, the absence of a metric that reflects the significant proportion of residents aged over 85; the limitations of using median wages as a proxy for the labour costs borne by the Council; and the government’s decision, announced with the Policy Statement, that rurality was to be removed as a factor from all but the ASC needs formulae. This is compounded by the continuation of the Recovery Grant (which has been top-sliced form the overall quantum to be paid to qualifying authorities). These changes fail to capture the true cost pressures in delivering statutory services in a county with high social care demand and a dispersed population, with limited opportunities to raise income locally.

As a result, ESCC’s 2026/27 budget is contingent on Exceptional Financial Support (EFS) via a £70m capitalisation direction to achieve legal budget balance. Capitalisation does not provide additional funding; it is a temporary measure to enable councils to meet statutory duties while implementing sustainable solutions and will result in increased future borrowing costs.

While we welcome the move to a multi-year settlement and the continuation of grant funding, the settlement does not address the structural gap created by rising demand for statutory services, particularly in social care. Without a significant increase in the overall quantum of funding or fundamental reforms to statutory services at a national level, the Council’s financial position will remain extremely challenging.