Wendy Eldridge (Lead Accountancy Manager) and Ollie Woodhams (Head of Finance) introduced the report and highlighted:

a)    The report fulfilled the requirement under the Treasury Management Code of Practice for the Council to report its treasury performance twice yearly. This was the mid?year review covering activity for 2025/26 up to 30 September 2025;

b)    The report compared actual treasury activity with the structure approved in the February 2025 annual budget;

c)    External economic context had been provided by Arlingclose, the Council’s treasury advisers;

d)    The report highlighted the scale of the SEND  Special Education Needs and Disabilities) deficit and the statutory override, noting the impact on the Council’s balance sheet and borrowing requirements;

                      i.        The SEND deficit was currently forecast to reach £54 million by March 2026 and was incorporated into borrowing forecasts;

                     ii.        A balance sheet summary showed increasing net borrowing to meet both the SEND deficit and cash flow requirements for capital schemes not funded by external grants;

                    iii.        The liability benchmark showed that including the SEND deficit increased the borrowing requirement above the preferred benchmark level;

                    iv.        When the SEND deficit was excluded, long?term borrowing at within the expected range;

e)    Borrowing increased in the first half of the year; the Council had made use of money market funds to hold borrowing at favourable rates until existing loans mature;

f)     A recommendation was proposed to increase the money market fund limit per counterparty from £12 million to £15 million, following benchmarking against similar councils;

g)    The borrowing strategy included reviewing LOBO (Lender option borrower option) loans and taking opportunities to borrow at advantageous rates, which the Council had done;

h)    The treasury management revenue budget was broadly balanced. Higher borrowing costs from securing loans early had been offset by increased interest income;

i)     Commercial investments made under previous rules total around £230 million, generating forecast net income of £12 million;

j)     A prudential indicator had been exceeded due to a higher level of fixed long?term borrowing than originally anticipated;

k)    A recommendation was made to increase the fixed rate target to allow flexibility in securing borrowing at beneficial rates over the next few months.

In response to questions, supported by Ian Trisk-Grove (Service Director for Finance), the following was discussed:

l)     The interest rate exposure showed borrowing over 365 days, while it also stated that borrowing was typically secured over 364 days - the one-day difference determined whether borrowing was treated as fixed or variable;

m)  Fixed borrowing gave certainty, but keeping some variable borrowing provides flexibility to secure cheaper rates when they fell, although it also carried the risk that rates may rise when the borrowing was refinanced;

n)    The government had extended the DSG deficit override by two years and had confirmed that this national issue would be addressed through upcoming announcements, including the policy statement, the provisional settlement, and most importantly the white paper in January 2026. Based on the information available, the government recognised the problem and intended to respond through these forthcoming measures;

o)    It could not be assumed that the Government would refund the deficit, so the Council could not make any allowance for future reimbursement in its accounts. The position would only become clear once the government issues the white paper in January 2026;

p)    The MTFS explicitly highlighted the DSG deficit, its growth from £18 million to a projected £54 million, and the impact on Plymouth. This demonstrated that the Council was formally calling out the problem through its reporting;

q)    The Council’s current approach was to present the facts and the financial impact of the deficit while awaiting the government’s white paper, which would set out the required next steps;

r)    The treatment of reserves was usually reported through the MTFS, and this would be addressed in more detail as we move closer to setting the 2026–27 budget;

s)     Based on advice from treasury management advisors, the current approach was to place more emphasis on fixing borrowing because although interest rates were expected to fall, they would not return to previous low levels. Fixed borrowing over three to five years would give greater certainty and protect the Council from interest rate risk;

t)     Some variable borrowing would be retained, partly because of the rate swap, but increasing the fixed rate limit provided flexibility to make the best decisions at the time;

u)    The gap between fixed and variable rates changed throughout the year. Early in the year many councils were cash heavy and offered lower variable rates, but later in the year variable borrowing was often more expensive. Increasing the fixed rate limit gave us flexibility to secure favourable fixed rates when they appeared, without compromising the borrowing rates. It ultimately depends on the market conditions at the time;

v)    The prudential indicators provided the framework that allowed the team to act within the approved strategy and make the best borrowing decisions as market conditions changed.

The Committee unanimously agreed to:

1. To endorse the midyear treasury management report 2025/26 to full Council;
   
   
2. To note the impact creating by borrowing for the SEND deficit and liability benchmark exposure to high borrowing, exceeding capital financing requirements.

3. To note non-compliance with the Treasury management indicator for interest rate exposure through upper limit on fixed rate exposure, explained by paragraph 12.3 of the report;

4. To endorse the following recommendations to Full Council;

                      i.                Increase the upper limit for fixed interest exposure to 100%;

                     ii.                Increasing the counterparty limit from £12 million to £15 million for investment in money market funds.