Appendix 1, Cabinet

Recommended · This went to the meeting on Tue 27 Jan 2026. What was decided is in that meeting's minutes.

It includes a Minimum Revenue Provision Policy Statement and an Annual Investment Strategy. p2

The Council has applied to government for Exceptional Finance Support for 2026/27 in the form of a capitalisation direction. p25

If the government approves this, the Council could treat some types of revenue expenditure as capital expenditure, funded by borrowing or capital receipts instead of the revenue budget. p25

The Council intends to treat up to £70m of revenue spend as additional capital expenditure in 2026/27 as part of the capitalisation direction. p95

The Council's capital programme for 2026/27 to 2028/29 forecasts £234m of capital investment, with £183m expected to be met from existing or new resources, leaving a borrowing need of £51m over the three years. p94

The Council has held an internal borrowing position since 2019/20, using cash from its own reserves instead of external borrowing. p83

Modelling has shown that the Council's long-term reserves could support at least £75m of internal borrowing. p84

The report projects that the Council's external borrowing requirement will peak at £647m in 2034/35. p129

The report states that the Council will need to borrow externally in 2026/27. p129

NatWest currently provides banking services for the Council. p255

The Council uses MUFG as its external treasury management advisor. p265

The report recommends that the Council approve a Minimum Revenue Provision Statement for 2025/26 onwards. p152

One proposed change is to base annuity calculations on the Council's average interest rate on long-term borrowing, instead of the previous fixed 2% rate. p150

Proposed changes to the investment strategy include reducing the maximum amount that can be lent to an individual UK local authority from £60m to £20m. p185

The Council's 2026/27 budget is contingent on Exceptional Financial Support through a £70m capitalisation direction to achieve a legally balanced budget. p456

Capitalisation direction does not provide additional funding; it is a temporary measure to let councils meet their statutory duties while working towards sustainable solutions. p456

Cabinet's responsibilities include recommending the Treasury Management Strategy to Full Council. p429

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• p2Including Minimum Revenue Provision Policy Statement and Annual Investment Strategy
• p25CIPFA 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.
• p832.2 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.
• p84Modelling 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.
• p94195 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.
• p95The 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.
• p129This 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.
• p150· 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.
• p152The Council is recommended to approve the following MRP Statement for 2025/26 onwards.
• p185· 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,
• p255NatWest currently provides banking services for the Council.
• p265The Council uses MUFG as its external treasury management advisors.
• p4292. Cabinet § Recommendation of the Treasury Management Strategy to Full Council
• p456As 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.