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Capital Budget Monitoring 2022/23
Capital Programme 2023/24 – 2025/26
Prudential Code Report and Treasury Management Strategy





1. Purpose of Report 

1.1 To present the 2022/23 Capital Monitoring position as at 30 November 2022. 

1.2 To recommend for approval the Capital Programme for 2023/24 and consider the Capital Programme for 2024/25 to 2025/26. 

1.3 To make recommendations required under the CIPFA Prudential Code for Capital Finance including the Treasury Management Strategy and Treasury Management Practices. 


2.1 That Members note the capital monitoring position as at 30 November 2022 as set out in Appendix 1. 

2.2 That Members approve slippage of £0.300m for the new Fire Station scheme at Matlock (paragraph 3.2). 

2.3 That Members approve slippage of £1.249m for the Emergency Services Network (ESN) scheme (paragraph 3.5). 

2.4 That Members approve the £0.033m overall reduction and re-allocation of the light fleet vehicle budgets between the approved schemes (paragraph 3.6). 

2.5 That Members approve three new and fleet equipment schemes totalling £0.130m (paragraph 3.8). 

2.6 That Members approve the 2023/24 Capital programme of £8.271m as detailed in Appendix 2. 

2.7 That Members approve to delegate to the Head of Corporate Financial Services/Treasurer authority to approve new borrowing, up to the Capital Financing Requirement, at the time he believes is most prudent. 

2.8 That Members approve the Prudential Indicators and MRP Policy as set out in Section 6. 

2.9 That Members approve the Treasury Management Strategy for 2023/24, included within this report (Appendix 3). 

2.10 That Members approve the Treasury Management Practises (Appendix 4). 

2.11 That Members note the Cipfa Members Treasury Management Self-Assessment Tool (Appendix 5). 


3.1 The capital monitoring position is shown in Appendix 1.  It shows total expenditure to date of £0.434m which represents 18% of the revised budget of £2.433m.    

Property Programme 

3.2 The scheme to build a new Fire Station at Matlock is progressing with tenders expected back early in March 2023. Dependent upon the tenders being within budget and a satisfactory review commencement will take place in 2023/24.  Slippage of £0.300m budget into 2023/24 is therefore requested. 

3.3 A review has been done of the works undertaken for the £0.077m scheme to strengthen and extend the life of the Joint Training Centre Breathing Apparatus House.  To comply with accounting regulations this expenditure requires transferring from capital to the revenue programme.  

3.4 The £0.022m scheme to provide a 4x4 vehicle garage at Ashbourne Fire Station is also now complete.  The final cost of the works exceeded the budget by £0.005m, which will be met from the capital development reserve. The scheme was adversely affected by the costs increases in the building sector, particularly the rising cost of steel.     

ICT Projects 

3.5 Systel have begun undertaking improvement works to the Tri Control Mobilising system. 

3.6 The Emergency Services Network (ESN) scheme is subject to Home Office approval of allowable expenditure that can be funded from their capital infrastructure grant. Slippage of £1.249m budget into 2023/24 is sought due to the continuing development of the technical specification for the ESN solution.        


3.7 The light fleet provision continues to be reviewed and approval is sought to reduce and re-allocate the budgets for these schemes to reflect the service improvement project findings and increase the flexibility within the fleet by introducing additional vans and reducing the provision of cars. 

3.8 Approval is requested to add three new fleet equipment schemes to the capital programme, funded from capital receipts;  

  • A £0.008m fuel bowser to give the service resilience during protracted instances, particularly moorland fires.  
  • A £0.040 scheme for new ladders including improved three-section 9 metre ladders. 
  • A £0.082m Equipment for the replacement Major Response Unit (MRU) vehicles, brought forward to the 2022/23 programme, to allow crews to train with new equipment prior to the new MRU vehicles entering service.   


4.1 The proposed Capital Programme for 2023/24 to 2025/26 is attached at Appendix 2.   

4.2 The 2023/24 indicative programme totals £8.271m. The Programme includes slippage from the 2022/23 Capital Programme. 


4.3 The service delivery risk review and the condition survey has led to the prioritisation of the following schemes: 

  • A £0.5m station refurbishment scheme is planned for this financial year.  
  • Two estate wide schemes, both costing £0.450m, to install improved lighting and heating systems at fire stations, over the next three years. 
  • A £0.060m scheme to install electric fleet charging points at 3 Hub Fire Stations. 

The New build fire station scheme at Matlock is anticipated to complete by the end of March 2024. 

ICT Projects 

4.4 The ICT programme for 2023/24 provides £0.035m for the rolling annual desktop PC replacement scheme. The annual £0.5m fund for emerging ICT Strategy schemes has been fully allocated across the prioritised schemes to provide: 

  • A £0.150m scheme for new Cloud Based Infrastructure. 
  • Two schemes at Ripley headquarters; £0.225m for Virtual Desktop infrastructure (VDI) Hardware and £0.225m for the Primary Data Centre. 

These schemes will run alongside the previously slipped schemes for Ascot Drive Fire Station; £0.250m for VDI Hardware and £0.200m for the Secondary Data Centre. 


4.5 The 2023/24 transport capital programme covers the replacement of five light fleet vehicles, (£0.172m), two new medium vans (£0.048m), three new appliance chassis and cab purchases, (£0.360m) and the provision of two replacement welfare vehicles (0.150m).   

4.6 The programme is under constant review to ensure that the fleet is utilised to best meet the needs of the service and may change accordingly. Strategy considerations include the impact of market forces increasing vehicle prices, emissions legislation and engine technology (electric vehicle range and charging infrastructure). 

Capital Financing  

4.7 The forecast usage of all financing sources is shown in Appendix 2 and the table in paragraph 6.9 below.  Shortfalls in resources will result in the need to undertake borrowing in coming years.   

4.8 The programme is financed through a proposed additional £14m of external borrowing.  Interest rates are expected to continue rising over the next year as the Bank of England uses interest rates to control growing inflation.  The service is mitigating the increasing external borrowing cost by maximising internal borrowing and reducing new borrowing in the short term. 



5.1 The Prudential Code for Capital Finance in Local Authorities (the Code) is a professional Code that sets out a framework for self-regulation of capital spending. In effect, it allows authorities to invest in capital projects which best meet their service delivery objectives as long as they are affordable, prudent and sustainable, subject to reserve powers to restrict borrowing for national economic reasons.   

5.2 To facilitate the decision-making process and support capital investment decisions the Prudential Code requires the Fire Authority to agree and monitor a number of prudential indicators.  The indicators cover: 

  • Capital expenditure. 
  • Affordability. 
  • Prudence. 
  • Debt levels. 
  • Treasury management. 
  • Liability benchmark. 

Reporting Requirements 

5.3 The Authority is required to receive and approve, as a minimum, three main reports each year, which incorporate a variety of polices, estimates and actuals.   

5.4 Prudential and Treasury Indicators and Treasury Strategy (this report) - The first and most important report 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 
  • an Investment Strategy (the parameters on how investments are to be managed) 

5.5 A mid-year Treasury Management Report – This will update members with the progress on capital spending and borrowing, amending prudential indicators as necessary, and report on whether any policies require revision.  This report will reflect the combined changes from Chartered Institute of Public Finance and Accountancy (CIPFA) and Department for Levelling Up, Housing and Communities (DLUHC) in respect of Prudential and Treasury Indicators.  

5.6 An Annual Treasury Report – This provides details of a selection of actual prudential and treasury indicators and actual treasury operations compared to the estimates within the strategy. 


6.1 The Prudential Indicators cover two main areas: 

Capital Issues 

  • the capital plans and the Prudential Indicators;  
  • the Minimum Revenue Provision (MRP) strategy. 

Treasury Management Issues 

  • the current treasury position; 
  • treasury indicators which limit the treasury risk and activities of the Fire Authority; 
  • prospects for interest rates; 
  • the Borrowing Strategy; 
  • policy on borrowing in advance of need; 
  • the Investment Strategy; 
  • creditworthiness policy; and 
  • policy on use of external service providers. 

6.2 These elements cover the requirements of the Local Government Act 2003, the CIPFA Prudential Code, CLG MRP Guidance, the CIPFA Treasury Management Code and  CLG Investment Guidance.  They are largely covered in the Treasury Management Strategy – Appendix 3. 


6.3 The CIPFA Code requires the responsible officer, the Treasurer, to ensure that Members with responsibility for Treasury Management receive adequate training.  This also applies to Members responsible for scrutiny. CIPFA have introduced the Members TM Self Assessment Tool (Appendix 5) to help identify any areas where further support is needed. A training session for Members was completed in October 2022, to aid understanding and ensure effective scrutiny.  On going training will be provided by Link Group, the Treasury Management Consultants for staff responsible for undertaking Treasury activities.  Training needs will continue to be regularly reviewed and training will be arranged as required.   

Treasury Management Consultants 

6.4 The Authority now employs Link Group as its Treasury Management Consultants.    They offer advice and training sessions which are targeted to staff training needs and provided locally.  This also provides the opportunity of networking with other local authorities in the area who also use Link Group as their consultants. 

6.5 The Authority recognises that responsibility for Treasury Management decisions remains with the organisation at all times and ensures that undue reliance is not placed upon our external service providers.  

6.6 The Authority also recognises that there is value in employing external providers of Treasury Management services to acquire access to specialist skills and resources, particularly in light of the uncertain economic and financial conditions. The Authority ensures that the terms of their appointment and the methods by which their value will be assessed are properly agreed and documented, and subjected to regular review.  


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

Capital Expenditure 

Prudential Indicator 1: Capital Expenditure – the projected Capital Programme and financing for the Authority 

6.8 This Prudential Indicator is a summary of the Authority’s capital expenditure and financing plans, both those agreed previously, and those forming part of this budget cycle.  Members are asked to approve the capital expenditure forecasts as detailed in 3.1 to 4.7 and Appendices 1 and 2. 

6.9 The table below summarises the above capital expenditure plans and how these plans are being financed by capital or revenue resources.  Any shortfall of resources results in a need to increase borrowing.   

Capital Expenditure and Financing 

2022/23 Revised 


2023/24 Estimate 


2024/25 Estimate 


2025/26 Estimate 


Total Expenditure 





Capital Receipts 




Government Grants (unapplied reserve) 








Revenue (includes Police contributions for co-location schemes) 






Leasing and PFI 

Total Financing 





6.10 The second prudential indicator is the Authority’s Capital Financing Requirement (CFR) and measures the Authority’s underlying need to borrow for a capital purpose. Any capital expenditure which has not immediately been paid for by reserves or capital grants and receipts will increase the CFR.   

6.11 The CFR does not increase indefinitely, as the Minimum Revenue Provision (MRP) is a statutory annual revenue charge which broadly reduces the borrowing need in line with each asset’s life. A Voluntary Revenue Provision (VRP) is a payment above the statutory minimum. 

6.12 The CFR includes any long-term liabilities arising from lease agreements. From 2024/25 onwards all rights of asset use agreements, such as operating leases, will be included in the CFR calculations. Operating leases are funded from revenue resources and provision is made annually to fund them from the revenue budget. This funding off-sets the CFR increase and therefore doesn’t increase the need to borrow.  

Prudential indicator 2: Capital Financing Requirement – outstanding debt from prior years capital programme financing 

6.13 The Authority is asked to approve the Capital Financing Requirement projections below: 

















Capital Financing Requirement 

Total year end CFR 






Movement in CFR 






Movement in CFR represented by 

Recognition operating leases from 01/04/2024 


Net financing need for the year from External Sources 




Less MRP and other financing movements 






Movement in CFR 






6.14 The CFR has been reducing year on year as debt is repaid.  From 2023/24 onwards new borrowing is required to fund the capital programme.  In 2024/25 the statutory £7.486m debt liability for the rights of use assets is recognised. The implementation of *IFRS16 legislation alters the accounting treatment of leases and forces the authority to recognise the value of the ‘right to use’ leased assets.  For DFRS the leases relate to the Joint Headquarters and Joint Training Centre and also for remaining leased officer cars.  The existing leases for the Joint Headquarters and Joint Training Centre run until 2039/40 and form the the rights of use debt.  Whilst the recognition of leased benefits increases the CFR and reported debt position of the authority the actual external borrowing is unchanged.  Rather the CFR now includes the financial commitments made for the use of capital assets. 

Prudential indicator 3: Liability Benchmark -This new indicator estimates and measures the liability benchmark for a minimum of the next three years and compares existing loan portfolio with proposed borrowing needs. 

The graph below is made up of four elements: 

  • The bar chart shows the value of the authority’s existing PWLB loans and maturity profile.  The existing loan debt outstanding line correlates with the bar chart. 
  • The net loans requirement line shows the authority’s loan debt, net of the treasury investments. The starting point is a negative value as the current treasury investments are greater in value than the existing loan debt. 
  • The liquidity allowance is an estimate of adequate liquidity levels for daily cashflow management. This value is added to the net loans requirement to produce the liability benchmark (also known as gross loans requirement), this is the dotted line on the graph. This demonstrates the Fire Authority’s internal borrowing capacity to maintain the treasury investments at the level of the liquidity allowance.  The starting point for the liability benchmark is below the existing borrowing portfolio, indicating no additional borrowing need and the surplus cash in excess of the current liquidity requirements. 
  • The loans CFR (capital financing requirement) line plots the existing loans plus the proposed prudential borrowing for the 2023/24 to 2025/26 capital programme.  The gap between the loans CFR line and the liability benchmark indicates the the borrowing need. 

Minimum Revenue Provision Policy Statement 

6.15 Background 

Minimum Revenue Provision (MRP) is statutory requirement to make a charge to the Authorities revenue account to make provision for the repayment of past capital debt and other credit liabilities. 

Since 2008 rules on borrowing and MRP were changed by the treasury giving public sector bodies more freedom to borrow and allowing each authority to establish its own MRP policy.  Each year the service is required to present to members its MRP policy for approval ensuring a ‘prudent’ provision is made.  

In determining a prudent level of MRP the Authority is under a statutory duty to have regard to guidance on MRP issued by the Secretary of State. The Guidance provides options which can be used by the Authority when determining its MRP policy and a prudent amount of MRP. The proposals in this paper are consistent with the Guidance. 

6.16 Derbyshire Fire and Rescue Methodology 

  • Capital expenditure financed by borrowing before 2008, MRP will be recognised on a straight-line basis over 15 years. This change from the reducing balance methodology was approved in February 2021 and applied to the 2020/21 accounts, hence the remaining term is now 13 years. 
  • Capital expenditure incurred after 1st April 2008 financed by unsupported borrowing, excluding finance leases, the MRP policy will use the Asset Life Method i.e., MRP will be an annual charge based on the estimated life of the assets. The provision is set aside in the year following the capital expenditure.  This approach continues to match the costs and benefits of the assets over the full useful life and is still considered the most prudent and is in line with current government recommendations. 

Affordability Prudential Indicators 

6.17 The previous sections cover the overall capital and control of borrowing prudential indicators, but within this framework Prudential Indicators are required to assess the affordability of the capital investment plans.   These provide an indication of the impact of the capital investment plans on the Authority’s overall finances.  The Authority is asked to approve the following indicators: 

Ratio of financing costs to net revenue stream 

Prudential indicator 4: Ratio of financing costs to net revenue stream -This indicator identifies the trend in the cost of capital against the net revenue stream. 

6.18 This indicator identifies the trend in the cost of capital (borrowing and other long term obligation costs, net of investment income) against the net revenue stream (how much money the Authority receives). 

















Total financing costs 






Net Revenue Stream 












6.19 The estimates of financing costs include current commitments and the proposals in this budget report and the table above shows a manageable ratio of financing costs to revenue funding, even as financing costs increase.    The relatively low ratio of debt costs to revenue stream puts the authority in a favourable position as it begins to borrow again and also reflects the effect of the change in MRP policy. The large increase in 2024/25 is caused by the principal repayments of two interest only loans (£0.926m), all the other loans outstanding repay the principal over the loan periods.   

Incremental impact of capital investment decisions on Authority tax. 

Prudential Indicator 5: Estimates of the incremental impact of capital investment decisions on the Council Tax – The estimated effect of the capital programme recommended in this report on the band D council tax 

6.20 This indicator identifies the revenue costs associated with proposed changes to the capital programme recommended in this budget report compared to the Authority’s existing approved commitments and current plans.  The assumptions are based on the budget, but will invariably include some estimates, such as the level of Government support. 
























Incremental Change 






6.21 The table above shows that the underlying effect of the proposed capital programme on the average Band D council tax charge is to increase it as new borrowing is required from 2023/24 onwards. This indicator includes the costs of repaying debt. The increase from 2023/24 onwards reflects the increase to debt from new borrowing. 


6.22 The capital expenditure plans set out in Section 3 and 4 provide details of the activity of the Authority.  The Treasury Management function ensures that the Authority’s cash is organised in accordance with the the relevant professional codes, so that sufficient cash is available to meet this service activity.  This will involve both the organisation of the cash flow and where capital plans require it, 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. 

Treasury Management Strategy 

6.23 The Chartered Institute of Public Finance and Accountancy’s Treasury Management in the Public Services: Code of Practice 2017 edition (the CIPFA code) requires the Authority to approve a Treasury Management Strategy before the start of each year.  The Treasury Management Strategy can be found in Appendix 3.  

6.24 The Strategy provides a clear working document for the Authority to assist in the management of the risks associated with Treasury Management.   

Prudential Indicator 6: The Operational Boundary - This indicator is based on the probable external debt during the course of the year; it is not a limit and actual borrowing could vary around this boundary for short times during the year. 

6.25 The current forecast for 2022/23 indicates that the operational boundary requires approval to decrease from £10.200m to £7.700m, due to the slippage of scheme expenditure into 2023/24 (section 3 above) and the deferral of schemes funded from new borrowing.  The boundary fluctuates annually in the table above due to the amount and timing of new borrowing being undertaken for the capital programme and the continuing repayment of existing borrowing.   

Operational boundary  


















IFRS16 operating leases 








Prudential indicator 7: The Authorised Limit – This represents the maximum amount of debt the Authority can legally owe. 

6.26 A further key Prudential Indicator represents a control on the maximum level of borrowing.  This represents a limit beyond which external debt is prohibited, and this limit needs to be set or revised by the Fire Authority.  It reflects the level of external debt which, while not desired, could be afforded in the short term, but is not sustainable in the longer term.  This is the statutory limit determined under section 3 (1) of the Local Government Act 2003. The Government retains an option to control either the total of all Authorities plans, or those of a specific Authority, although this power has not yet been exercised. The Authority is asked to approve the following authorised limit: 

Authorised limit  


















IFRS16 operating leases 








6.27 The authorised limit includes £1m to allow for any short-term borrowing required for cashflow purposes should it be required in an emergency. 

6.28 The current forecast for 2022/23 indicates that the authorised limit requires approval to decrease from £10.800m to £8.300m, due to the slippage of scheme expenditure into 2023/24 (section 3 above) and the deferral of schemes funded from new borrowing.  Again, the authorised limit fluctuates correspondingly with the operational boundary. The authorised limit is calculated to allow for new loans increasing the authority’s debt prior to the timing of existing loan repayments during each year. 

7. Legal Considerations 

7.1 Included within the main body of the report. 

8. Financial Considerations 

8.1 This report is financial in nature and due consideration has been taken to ensure that the capital programme and associated borrowing proposed is affordable and prudent.  This report should be considered alongside the revenue budget report for 2022/23 – 2025/26.   

Appendix 1

08a. Appendix 1 Capital Programme 2022-23 monitoring to 30 November 2022 V2 (xlsx 91.18 KB)

Appendix 2

08b. Appendix 2 Capital Programme 2023-24 to 2025-26 V3 (xlsx 18.99 KB)

Appendix 3

Treasury Management Strategy Statement 2023/24


Treasury management is the management of the Authority’s cash flows, borrowing and investments, and the associated risks. The Authority has invested substantial sums of money and is therefore exposed to financial risks including the loss of invested funds and the revenue effect of changing interest rates.  The successful identification, monitoring and control of financial risk are therefore central to the Authority’s prudent financial management.

Treasury risk management at the Authority is conducted within the framework of the Chartered Institute of Public Finance and Accountancy’s Treasury Management in the Public Services: Code of Practice 2021 Edition (the CIPFA Code) which requires the Authority to approve a treasury management strategy before the start of each financial year. This report fulfils the Authority’s legal obligation under the Local Government Act 2003 to have regard to the CIPFA Code.

External Context

Economic background: The impact on the UK from the war in Ukraine, coronavirus, together with the UK exit from the European Union and future trading arrangements with the bloc, will remain a major influence on the Authority’s treasury management strategy for 2023/24.

The Bank of England’s Monetary Policy Committee voted by a majority of 6-3 to raise interest rates by 50 basis points to 3.5% during its December meeting. Two of the members voted to leave rates unchanged whilst six supported the 50bps hike and one member voted for a 75bps rise. The voting pattern shows this was the first time anyone had voted to leave rates unchanged since the Bank started raising rates a year ago. This has pushed the cost of borrowing to the highest level since late-2008, as policy makers try to balance containing inflation amid rising concerns of a looming economic recession. Capital Economics have pencilled in rates to peak at 4.50% by Q2 2023. The annual consumer-level inflation rate in the UK eased to 10.7% in November from 11.1% in October which had been the highest since October 1981. The figure was below market forecasts of 10.9% with the largest downward contribution made by transport, particularly motor fuels and second-hand cars. UK employment rose by 27,000 in the three months to October, beating market estimates of a 17,000 decline and following a 53,000 drop in the previous month’s reading. The unemployment rate in the UK edged higher to 3.7% in October from 3.6% in the previous period, matching market forecasts. Job vacancies however, fell by 65,000 to 1,187,000, a fifth consecutive decline, and reflecting uncertainty across industries, as economic pressures hold back on recruitment. Average weekly earnings including bonuses in the UK increased by 6.1% y/y in the three months to October, above a 6.0%gain in the three months to September but less than market forecasts of 6.2%. Meanwhile, regular pay which excludes bonus payment also went up 6.1%, the most since July 2021, exceeding forecasts of 5.9%. Adjusted for inflation, total pay fell 2.7%, and regular pay also dropped 2.7%, underlining the squeeze on households. In addition, retail sales unexpectedly declined 0.4% m/m in November, after an upwardly revised 0.9% in the previous month when there was a bounce back from the impact of the additional Bank Holiday in September for the State Funeral.

Gross domestic product (GDP) shrank 0.3% on quarter in the three months to September of 2022, slightly more than a preliminary estimate of a 0.2% drop. Household expenditure dropped 1.1%, while business investment went down 2.5% and inventories fell by £5.2 billion, mainly driven by reductions for retail and manufacturing. On the other hand, government expenditure went up 0.5% and government investment surged 17.3%, while exports jumped 8.9% compared to a 3.6% decline for imports. Nevertheless, The UK monthly GDP grew by 0.5% in October from September, the biggest increase in nearly a year and above forecasts of 0.4%.

Interest rate forecast: The Authority has appointed Link Group as its treasury advisor and part of their service is to assist the Authority to formulate a view on interest rates. Link provided the following forecasts on 2nd December 2021. 

Table 2 Interest Rate Forecast

Link Group Interest Rate View 08.11.22

Item Dec-22 Mar-23 Jun-23 Sep-23 Dec-23 Mar-24 Jun-24 Sep-24 Dec-24 Mar-25 Jun-25 Sep-25 Dec-25
BANK RATE 3.5 4.25 4.5 4.5 4.5 4 3.75 3.5 3.25 3 2.75 2.5 2.5
3 month ave earnings 3.6 4.3 4.5 4.5 4.5 4 3.8 3.3 3 3 2.8 2.5 2.5
6 month ave earnings 4.2 4.5 4.6 4.5 4.2 4.1 3.9 3.4 3.1 3 2.9 2.6 2.6
12 month ave earnings 4.7 4.7 4.7 4.5 4.3 4.2 4 3.5 3.2 3.1 3 2.7 2.7
5 yr PWLB 4.3 4.3 4.2 4.1 4 3.9 3.8 3.6 3.5 3.4 3.3 3.2 3.1
10 yr PWLB 4.5 4.5 4.4 4.3 4.2 4 3.9 3.7 3.6 3.5 3.4 3.3 3.2
25 yr PWLB 4.7 4.7 4.6 4.5 4.4 4.3 4.1 4 3.9 3.7 3.6 3.5 3.5
50 yr PWLB 4.3 4.4 4.3 4.2 4.1 4 3.8 3.7 3.6 3.4 3.3 3.2 3.2

Local Context

On 31st December 2022, the Authority held £6.86m of borrowing and £9.3m of treasury investments.

The underlying need to borrow for capital purposes is measured by the Capital Financing Requirement (CFR), while usable reserves and working capital are the underlying resources available for investment.  The Authority’s has previously had a strategy is to maintain borrowing and investments below their underlying levels, sometimes known as internal borrowing.

The Authority has an increasing CFR due to the capital programme, and will be required to take out additional borrowing of £14m in subsequent years.

Borrowing Strategy

Objectives: The Authority’s chief objective when borrowing money is to strike an appropriately low risk balance between securing low interest costs and achieving certainty of those costs over the period for which funds are required.  The flexibility to renegotiate loans should the Authority’s long-term plans change is a secondary objective.

Strategy: Given the significant increase in interest rates and debt financing, the Authority’s borrowing strategy continues to address the key issue of affordability without compromising the longer-term stability of the debt portfolio. With the prospect of interest rates peaking within the coming year and the authorities need to borrow in the medium term it is likely the authority will look to use internal borrowing where possible.  Any borrowing that cannot be satisfied will be taken in the short term with the option to refinance at reduced rates. 

By doing so, the Authority is able to reduce net borrowing costs and reduce overall treasury risk. The authority’s treasury advisors, Link Group,  will assist the Authority with identifying the most appropriate time for borrowing.

The Authority has previously raised all its long-term borrowing from the PWLB but will consider loans from other sources including banks, pensions and local authorities in order to lower interest costs and reduce over-reliance on one source of funding in line with the CIPFA Code. PWLB loans are no longer available to local authorities planning to buy investment assets primarily for yield; the Authority intends to avoid this activity in order to retain its access to PWLB loans.

In addition, the Authority may borrow short-term loans to cover unplanned cash flow shortages.

Sources of borrowing: The approved sources of long-term and short-term borrowing are:

  • HM Treasury’s PWLB lending facility (formerly the Public Works Loan Board)
  • any institution approved for investments (see below)
  • any other bank or building society authorised to operate in the UK
  • any other UK public sector body
  • UK public and private sector pension funds (except Derbyshire County Council Pension Fund)
  • capital market bond investors
  • UK Municipal Bonds Agency plc and other special purpose companies created to enable local authority bond issues

Other sources of debt finance: In addition, capital finance may be raised by the following methods that are not borrowing, but may be classed as other debt liabilities:

  • leasing
  • hire purchase
  • Private Finance Initiative
  • sale and leaseback

Municipal Bonds Agency: UK Municipal Bonds Agency plc was established in 2014 by the Local Government Association as an alternative to the PWLB.  It issues bonds on the capital markets and lends the proceeds to local authorities.  This is a more complicated source of finance than the PWLB for two reasons: borrowing authorities will be required to provide bond investors with a guarantee to refund their investment in the event that the agency is unable to for any reason; and there will be a lead time of several months between committing to borrow and knowing the interest rate payable. Any decision to borrow from the Agency will therefore be the subject of a separate report to Fire Authority. 

Short-term and variable rate loans: These loans leave the Authority exposed to the risk of short-term interest rate rises and are therefore subject to the interest rate exposure limits in the treasury management indicators below. Financial derivatives may be used to manage this interest rate risk (see section below).

Debt rescheduling: The PWLB allows authorities to repay loans before maturity and either pay a premium or receive a discount according to a set formula based on current interest rates. Other lenders may also be prepared to negotiate premature redemption terms. The Authority may take advantage of this and replace some loans with new loans, or repay loans without replacement, where this is expected to lead to an overall cost saving or a reduction in risk.

Treasury Investment Strategy

The Authority holds significant invested funds, representing income received in advance of expenditure plus balances and reserves held. In the past 12 months, the Authority’s investment balance has ranged between £13m and £6m.

Objectives: The CIPFA Code requires the Authority to invest its treasury funds prudently, and to have regard to the security and liquidity of its investments before seeking the highest rate of return, or yield and consider Environmental, social and governance (ESG) issues. The Authority’s objective when investing money is to strike an appropriate balance between risk and return, minimising the risk of incurring losses from defaults and the risk of receiving unsuitably low investment income. Where balances are expected to be invested for more than one year, the Authority will aim to achieve a total return that is equal or higher than the prevailing rate of inflation, in order to maintain the spending power of the sum invested.

Negative interest rates: The COVID-19 pandemic saw record low interest rates and even negative rates from the Debt Management Office for short term investments.  The need to control inflation is likely to see this position moved further away from over coming years and continuing increases to BoE interest rates.  The authority continues to value security and liquidity over return in its decision-making process for investment evaluation.

Strategy: The BoE interest rate rises over the past 12 months have significantly increased the return available to the Authority for unsecured investments and seen a resumption in placing these types of investments.  This has conversely reduced the level of lower risk, secured investments placed with other local authorities. 

Business models: Under the new IFRS 9 standard, the accounting for certain investments depends on the Authority’s “business model” for managing them. The Authority aims to achieve value from its treasury investments by a business model of collecting the contractual cash flows and therefore, where other criteria are also met, these investments will continue to be accounted for at amortised cost.

Approved counterparties: The Authority may invest its surplus funds with any of the counterparty types in table 2 below, subject to the limits shown.  In normal circumstances the authority will use UK based banks, rather than other local authorities and government entities as its preferred investment counterparty.

Table 2: Treasury investment counterparties and limits


Time limit

Counterparty limit

Sector limit

The UK Government

50 years



Local authorities & other government entities

25 years



Secured investments *

25 years



Banks (unsecured) *

13 months



Building societies (unsecured) *

13 months



Registered providers (unsecured) *

5 years



Money market funds *




Strategic pooled funds




Real estate investment trusts




This table must be read in conjunction with the notes below

* Minimum credit rating: Treasury investments in the sectors marked with an asterisk will only be made with entities whose lowest published long-term credit rating is no lower than A-. Where available, the credit rating relevant to the specific investment or class of investment is used, otherwise the counterparty credit rating is used. However, investment decisions are never made solely based on credit ratings, and all other relevant factors including ESG considerations and external advice will be taken into account.

Government: Loans to, and bonds and bills issued or guaranteed by, national governments, regional and local authorities and multilateral development banks. These investments are not subject to bail-in, and there is generally a lower risk of insolvency, although they are not zero risk. Investments with the UK Government are deemed to be zero credit risk due to its ability to create additional currency and therefore may be made in unlimited amounts for up to 50 years.

Secured investments: Investments secured on the borrower’s assets, which limits the potential losses in the event of insolvency. The amount and quality of the security will be a key factor in the investment decision. Covered bonds and reverse repurchase agreements with banks and building societies are exempt from bail-in. Where there is no investment specific credit rating, but the collateral upon which the investment is secured has a credit rating, the higher of the collateral credit rating and the counterparty credit rating will be used. The combined secured and unsecured investments with any one counterparty will not exceed the cash limit for secured investments.

Banks and building societies (unsecured): 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. See below for arrangements relating to operational bank accounts.

Registered providers (unsecured): Loans to, and bonds issued or guaranteed by, registered providers of social housing or registered social landlords, formerly known as housing associations. These bodies are regulated by the Regulator of Social Housing (in England), the Scottish Housing Regulator, the Welsh Government and the Department for Communities (in Northern Ireland). As providers of public services, they retain the likelihood of receiving government support if needed. 

Money market funds: Pooled funds that offer same-day or short notice liquidity and very low or no price volatility by investing in short-term money markets. They have the advantage over bank accounts of providing wide diversification of investment risks, coupled with the services of a professional fund manager in return for a small fee. Although no sector limit applies to money market funds, the Authority will take care to diversify its liquid investments over a variety of providers to ensure access to cash at all times.

Strategic pooled funds: Bond, equity and property funds that offer enhanced returns over the longer term but are more volatile in the short term.  These allow the Authority to diversify into asset classes other than cash without the need to own and manage the underlying investments. Because these funds have no defined maturity date, but are available for withdrawal after a notice period, their performance and continued suitability in meeting the Authority’s investment objectives will be monitored regularly.

Real estate investment trusts: Shares in companies that invest mainly in real estate and pay the majority of their rental income to investors in a similar manner to pooled property funds. As with property funds, REITs offer enhanced returns over the longer term, but are more volatile especially as the share price reflects changing demand for the shares as well as changes in the value of the underlying properties.

Operational bank accounts: The Authority may incur operational exposures, for example though current accounts, collection accounts and merchant acquiring services, to any UK bank with credit ratings no lower than BBB- and with assets greater than £25 billion. These are not classed as investments, and subject to the investment counterparty limit, but are still subject to the risk of a bank bail-in, and balances will therefore be monitored daily. Investments will be placed in a timely manner. (The precise date of grant income receipt is not always known and cut-off times for investment transfers can prevent investments being placed on the same day as receipt.) The Bank of England has stated that in the event of failure, banks with assets greater than £25 billion are more likely to be bailed-in than made insolvent, increasing the chance of the Authority maintaining operational continuity.

Risk assessment and credit ratings: Credit ratings are obtained and monitored by the Authority’s treasury advisers, who will notify changes in ratings as they occur. The credit rating agencies in current use are listed in the Treasury Management Practices document. Where an entity has its credit rating downgraded so that it fails to meet the approved investment criteria then:

  • no new investments will be made,
  • any existing investments that can be recalled or sold at no cost will be, and
  • full consideration will be given to the recall or sale of all other existing investments with the affected counterparty.

Where a credit rating agency announces that a credit rating is on review for possible downgrade (also known as “negative watch”) so that it may fall below the approved rating criteria, then only investments that can be withdrawn on the next working day will be made with that organisation until the outcome of the review is announced.  This policy will not apply to negative outlooks, which indicate a long-term direction of travel rather than an imminent change of rating.

Other information on the security of investments: The Authority understands that credit ratings are good, but not perfect, predictors of investment default.  Full regard will therefore be given to other available information on the credit quality of the organisations in which it invests, including credit default swap prices, financial statements, information on potential government support, reports in the quality financial press and analysis and advice from the Authority’s treasury management adviser.  No investments will be made with an organisation if there are substantive doubts about its credit quality, even though it may otherwise meet the above criteria.

When deteriorating financial market conditions affect the creditworthiness of all organisations, as happened in 2008 and 2020, this is not generally reflected in credit ratings, but can be seen in other market measures. In these circumstances, the Authority will restrict its investments to those organisations of higher credit quality and reduce the maximum duration of its investments to maintain the required level of security. The extent of these restrictions will be in line with prevailing financial market conditions. If these restrictions mean that insufficient commercial organisations of high credit quality are available to invest the Authority’s cash balances, then the surplus will be deposited with the UK Government, or with other local authorities.  This will cause investment returns to fall but will protect the principal sum invested.

Investment limits: In order that no available reserves will be put at risk in the case of a single default, the maximum that will be lent to any one organisation (other than the UK Government, the Government run Debt Management Office and amounts held with Barclays, as our current bankers) will be £6 million. A group of entities under the same ownership will be treated as a single organisation for limit purposes.

Limits are also placed on fund managers, investments in brokers’ nominee accounts and foreign countries as below. Investments in pooled funds and multilateral development banks do not count against the limit for any single foreign country since the risk is diversified over many countries.

Table 3: Additional investment limits


Cash limit

Any group of pooled funds under the same management

£6m per manager

Negotiable instruments held in a broker’s nominee account

£2m per broker

Foreign countries

£6m per country

Liquidity management: The Authority uses cash flow forecasting to determine the maximum period for which funds may prudently be committed.  The forecast is compiled on a prudent basis to minimise the risk of the Authority being forced to borrow on unfavourable terms to meet its financial commitments. Limits on long-term investments are set by reference to the Authority’s medium-term financial plan and cash flow forecast.

Treasury Management Indicators

The Authority measures and manages its exposures to treasury management risks using the following indicators.

Principal sums invested for periods longer than a year: The purpose of this indicator is to control the Authority’s exposure to the risk of incurring losses by seeking early repayment of its investments.  The limits on the long-term principal sum invested to final maturities beyond a year will be £6m.

Related Matters

The CIPFA Code requires the Authority to include the following in its treasury management strategy.

Financial derivatives: In the absence of any explicit legal power to do so, the Authority will not use standalone financial derivatives (such as swaps, forwards, futures and options).  Derivatives embedded into loans and investments, including pooled funds and forward starting transactions, may be used, and the risks that they present will be managed in line with the overall treasury risk management strategy.

Markets in Financial Instruments Directive: The Authority has retained retail client status with its providers of financial services, including advisers, brokers and fund managers, allowing it access to a smaller range of services but with the greater regulatory protections afforded to individuals and small companies. Given the size and range of the Authority’s treasury management activities, the Treasurer believes this to be the most appropriate status.

Financial Implications

The budget for investment income in 2023/24 is £200,000, whilst the budget for debt interest paid in 2023/24 is £281,000.  If actual levels of investments and borrowing, or actual interest rates, differ from those forecasts, performance against budget will be correspondingly different.

Other Options Considered

The CIPFA Code does not prescribe any treasury management strategy for local authorities to adopt. The Treasurer, believes that the above strategy represents an appropriate balance between risk management and cost effectiveness.  Some alternative strategies, with their financial and risk management implications, are listed below.


Impact on income and expenditure

Impact on risk management

Invest in a narrower range of counterparties and/or for shorter times

Interest income will be lower

Lower chance of losses from credit related defaults, but any such losses may be greater

Invest in a wider range of counterparties and/or for longer times

Interest income will be higher

Increased risk of losses from credit related defaults, but any such losses may be smaller

Borrow additional sums at long-term fixed interest rates

Debt interest costs will rise; this is unlikely to be offset by higher investment income

Higher investment balance leading to a higher impact in the event of a default; however long-term interest costs may be more certain

Borrow variable loans instead of long-term fixed rates

Debt interest costs will initially be lower

Increases in debt interest will be broadly offset by rising investment income in the medium term, but long-term costs may be less certain

Reduce level of borrowing

Saving on debt interest is likely to exceed lost investment income

Reduced investment balance leading to a lower impact in the event of a default; however long-term interest costs may be less certain

Appendix 4


1. This organisation has adopted and implemented the key principles of the CIPFA Treasury Management in the Public Services Code of Practice and Cross Sectoral Guidance Notes. These principles are considered vital to the achievement of proper corporate governance in treasury management. The responsible officer will monitor and, if and when necessary, report upon the effectiveness of these arrangements.


2. The service regards a key objective of its treasury management activities to be the security of the principal sums it invests. The priority order being security, liquidity and yield (SLY). Environmental, social and governance (ESG) considerations inform and underpin policies and procedures. Accordingly, the service will ensure robust due diligence procedures cover all external investment.  The Section 151 Officer will design, implement and monitor all arrangements for the identification, management and control of treasury management risk. The Section 151 officer will report on treasury management policies, practices and activities, including, as a minimum, an annual strategy and plan in advance of the year, a mid-year review and an annual report after its close.

Credit and counterparty risk management

3. The Service will ensure that its counterparty lists and limits reflect a prudent attitude towards organisations with whom funds may be deposited, and will limit its investment activities to the instruments, methods and techniques referred to in the annual treasury management strategy.

Liquidity risk management

4. The Service will ensure it has adequate though not excessive cash resources, borrowing arrangements, overdraft or standby facilities to enable it at all times to have the level of funds available to it which are necessary for the achievement of its business/service objectives. The Service will only borrow in advance of need where there is a clear business case for doing so and will only do so for the current capital programme or to finance future debt maturities.

Interest rate risk management

5. The Service will seek to manage its exposure to fluctuations in interest rates with a view to containing its interest costs, or securing its interest revenues, in accordance with the amounts provided in its budgetary arrangements. It will achieve this by the prudent use of its approved instruments, methods and techniques, primarily to create stability and certainty of costs and revenues, but at the same time retaining a sufficient degree of flexibility to take advantage of unexpected, potentially advantageous changes in the level or structure of interest rates. This should be the subject to the consideration and, if required, approval of any policy or budgetary implications.

Inflation risk management

6. The Service will keep under review the sensitivity of its treasury management assets and liabilities to inflation and will seek to manage the risk accordingly in the context of its wider exposure to inflation.

Refinancing risk management

7. The Service will ensure that its borrowing is structured and documented, and the maturity profile of the monies raised are managed, with a view to obtaining terms for renewal or refinancing, if required, which are competitive and as favourable to the organisation as can reasonably be achieved in the light of market conditions prevailing at the time.  It will manage its relationships with its counterparties in these transactions in such a manner as to secure this objective and will avoid overreliance on any one source of funding if this might jeopardise achievement of the above.

Legal and regulatory risk management

8. The Service will ensure that all of its treasury management activities comply with its statutory powers and regulatory requirements. It will demonstrate such compliance, if required to do so, to all parties with whom it deals in such activities.  The Service recognises that future legislative or regulatory changes may impact on its treasury management activities and, so far as it is reasonably able to do so, will seek to minimise the risk of these impacting adversely on the Service.

Fraud, error and corruption and contingency management

9. The Service will ensure that it has identified the circumstances which may expose it to the risk of loss through fraud, error, corruption or other eventualities in its treasury management dealings. Accordingly, it will employ suitable systems and procedures, and will maintain effective contingency management arrangements, to these ends.

Market risk management

10. The Service will seek to ensure that its stated treasury management policies and objectives will not be compromised by adverse market fluctuations in the value of the principal sum it invests and will accordingly seek to protect itself from the effects of such fluctuations.


11. The Service is committed to the pursuit of value for money in its treasury management activities, and to the use of performance methodology in support of that aim, within the framework set out in its treasury management policy statement.  Accordingly, the treasury management function will be the subject of ongoing analysis of the value it adds in support of the Service’s business or service objectives and performance will be measured against relevant benchmarks.


12. The Service will maintain full records of its treasury management decisions, and of the processes and practices applied in reaching those decisions, both for the purposes of learning from the past, and for demonstrating that reasonable steps were taken to ensure that all issues relevant to those decisions were taken into account at the time.


13. The Service will undertake its treasury management activities by employing only those instruments, methods and techniques detailed in its annual Investments Strategy, and within the limits and parameters defined in TMP1 Risk management. The Service has reviewed its classification with financial institutions under MIFID II and will use the instruments and methods appropriate to a retail client.


14. The Service considers it essential, for the purposes of the effective control and monitoring of its treasury management activities, for the reduction of the risk of fraud or error, and for the pursuit of optimum performance, that these activities are structured and managed in a fully integrated manner, and that there is at all times a clarity of treasury management responsibilities. The principle on which this will be based is a clear distinction between those charged with setting treasury management policies and those charged with implementing and controlling these policies, particularly with regard to the execution and transmission of funds, the recording and administering of treasury management decisions, and the audit and review of the treasury management function. If and when it is intended, as a result of lack of resources or other circumstances, to depart from these principles, the Section 151 Officer will ensure that the reasons are properly reported in accordance with TMP6 Reporting requirements and management information arrangements, and the implications properly considered and evaluated. The Section 151 Officer will ensure that there are clear written statements of the responsibilities for each post engaged in treasury management, and the arrangements for absence cover. The Section 151 Officer will also ensure that at all times those engaged in treasury management will follow the policies and procedures set out. The Section 151 Officer will ensure there is proper documentation for all deals and transactions, and that procedures exist for the effective transmission of funds.


15. The Service will ensure that regular reports are prepared and considered on the implementation of its treasury management policies; on the effects of decisions taken and transactions executed in pursuit of those policies; on the implications of changes, particularly budgetary, resulting from regulatory, economic, market or other factors affecting its treasury management activities; and on the performance of the treasury management function. The Chief Financial Officer will report to the Authority on TM activity / performance as follows:

  • (a) A mid-year review against the strategy approved for the year,
  • (b) An outturn report on its treasury activity, no later than 30 September after the financial year end.


16. The Section 151 Officer will prepare and present for approval an annual budget for treasury management, which will bring together all of the costs involved in running the treasury management function, together with associated income. The matters to be included in the budget will at minimum be those required by statute or regulation, together with such information as will demonstrate compliance with TMP1 Risk Management, TMP 2 Performance Measurement, and TMP 4 Approved instruments and Techniques. The Section 151 Officer will exercise effective controls over this budget and will report upon and recommend any changes required. The Service will account for its treasury management activities, for decisions made and transactions executed, in accordance with appropriate accounting practices and standards, and with statutory and regulatory requirements in force at that time.


17. Unless statutory or regulatory requirements demand otherwise, all monies in the hands of the Service will be under the control of the Section 151 Officer and will be aggregated for cash flow and investment management purposes. Cash flow projections will be prepared on a regular and timely basis, and the Section 151 Officer will ensure that these are adequate for the purposes of monitoring compliance with TMP1 Liquidity risk management.


18. The Service is alert to the possibility that it may become the subject of an attempt to involve it in a transaction involving the laundering of money. Accordingly, it will maintain procedures for verifying and recording the identity of counterparties and reporting suspicions and will ensure that staff involved in this are properly trained.


19. The Service recognises the importance of ensuring that all staff involved in the treasury management function are fully equipped to undertake the duties and responsibilities allocated to them. It will therefore seek to appoint individuals who are both capable and experienced and will provide training for staff to enable them to acquire and maintain an appropriate level of expertise, knowledge and skills. The responsible officer will recommend and implement the necessary arrangements. The responsible officer will ensure that elected members tasked with treasury management responsibilities, including those responsible for scrutiny, have access to training relevant to their needs and those responsibilities. Those charged with governance recognise their individual responsibility to ensure that they have the necessary skills to complete their role effectively.  A Members Treasury Management Self- Assessment Tool has been introduced to help members identify any areas where support or training is needed to ensure development of effective scrutiny.


20. The Service recognises that responsibility for treasury management decisions remains with the Service at all times. However, the Service recognises that there may be value in employing external providers of treasury management services, in order to acquire access to specialist skills and resources. When it employs such service providers, it will do so following a full evaluation of the costs and benefits and will also ensure that the terms of their appointment are properly agreed and documented and subjected to regular review. Where services are subject to formal tender or re-tender arrangements, legislative requirements will always be observed. The monitoring of such arrangements rests with the Section 151 Officer.


21. The Service is committed to the pursuit of proper corporate governance throughout its businesses and services, and to establishing the principles and practices by which this can be achieved. Accordingly, the treasury management function and its activities will be undertaken with openness and transparency, honesty, integrity and accountability.

Appendix 5

Members TM Self Assessment tool

Introduced by Cipfa to help Members "identify any areas where support or training is needed to ensure development of effective scrutiny" 

Aspects of delivering effective Scrutiny YES  No  Partly  Comments Examples  Action Plan for Improvement Development 
Clearly Defined Responsibility          
Knowledge & Training          
Support for Effective Scrutiny          
Coverage of the Required Areas          
Quality of Scrutiny           
Impact of Scrutiny           

9. Asset Management Considerations 

9.1 The capital programme outlined in this report is in line with the corporate Property Asset Management Plan, Fleet Replacement programme and Systems & Information Strategy. 

This report has been consulted upon and approved by the following officers: 

  • Strategic Leadership Team – 18.1.23 
  • Contact Officer: Mark Nash Contact No: 01773 305410 

Background Papers:  

  • 2022/23 – 2024/25 Capital Programme, Prudential Code Report and Treasury Management Strategy, 10 February 2022 
  • 2021/22 Capital Monitoring Update, 24 March 2022 
  • 2021/22 Capital and Prudential Outturn, 28 July 2022 
  • 2022/23 Capital Monitoring and Prudential Update, 1 December 2022 
  • Local Government Act 2003 
  • Prudential Code (amended in 2012) 
  • CIPFA Treasury Management in Public Services: Code of Practice 2017 Edition (the CIPFA Code) and associated guidance issued by CLG