Treasury Management review Jan 2026

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North Petherton Town Council

Treasury Management Policy
Approved By the Town Council 15 May 2023
Reviewed 20.01.2025
Reviewed and Updated by Council 24.11.2025
This policy sets out the Town Council’s policy regarding
investments, lending and borrowing

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Introduction
1.

Treasury Management covers the borrowing, investment, loaning and cash flow
activities of the Town Council and the effective management of risks in relation to
those activities. Treasury Management is an important element in the overall
management of the Town Council’s financial affairs.

2.

The Council’s Treasury Management activities are controlled by the Local Government
Act 2003 and any associated Regulations (e.g. the Local authorities Capital Finance
and Accounting Regulations 2003).

3.

In accordance with best practice, the Town Council will also give heed to CIPFA
publications, such as The Treasury Management Code of Practice and the Prudential
Code for Capital Finance in so far as they are relevant to the Town Council’s
circumstances and activities.

4.

Treasury Management is concerned with how organisations manage their cash
resources. Risk is inherent in all treasury management activities and it is necessary to
balance risk and return. In the public services it is generally considered that the
priority is to protect capital rather than maximise return.

5.

Loans
The Town Council provides grants to support local organisations (see separate Grants
Policy and Procedure) but occasionally an organisation may request a loan or the
Town Council decides a loan is more appropriate.

6.

The Town Council will consider provision of a loan from community organisations that
are based within the area covered by the Town Council and provide a benefit to the
residents of the town.

7.

Each loan application will include a business case and the Town Council’s evaluation
will include the financial viability of the project, the demonstration / evidence of
community need, value for money, the delivery time-scale and the ability of the
organization to repay the debt.

8.

Loans will be subject to the principles and conditions of the investment strategy
section of this Treasury Management document.

9.

The Loans policy section of this Treasury Management document is to be considered
as guidance for when a loan is considered.

Loan Principles
10. A loan will usually only be considered to fund capital expenditure
11. The recipient organisation must be able to demonstrate that it has the ability to repay
the debt.
12. The application for a loan must be made before any works relating to the application
have been started.

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13. Loans must not represent more than 30% of the total project costs. All other funding
must be confirmed before the loan is advanced.
14. Security on the loan must be guaranteed.
15. The Town Council will assess and decide all loan applications and reserves the right to
refuse an application if it considers that the risk is unacceptable or that the benefit to
the community is not commensurate with the loan.
16. Loans must be repaid within an agreed time-frame, which will not exceed the period
for which the expenditure is forecast to provide benefit to the Town Council i.e. useful
life of the asset. The maximum loan period will be 50 years for acquisition of, or work
on or to, land, buildings roads or structures and 10 years in all other cases. (See also
section 34)
Consideration may be given for a payment holiday, normally up to two years.
17. The exact terms of any loan will be written into a legal Loan Agreement.
18. Interest will be payable but the Town Council may offer an interest free period,
normally for up to two years.
19. Interest will usually be charged at the appropriate Public Works Loan Board (PWLB)
rate for the amount and duration of the loan plus a premium of 0.5%; the rate will be
determined on the date that the loan offer is made.
20. Cumulative interest will be charged therefore late repayments will result in additional
interest becoming due. The interest rate will be charged from the date the loan
advance is made. There will be no penalties for early repayment.
21. Loans must be repaid at the intervals / on the dates stated in the loan agreement and
made by direct debit / standing order and include the capital and interest repayment.
A repayment model will be included in the Loan Agreement.
22. A loan will not be made if the organisation does not have land or buildings (or ither
assets / personal guarantees) on which a charge of the value of the loan can be made.
23. All loans will normally be for capital spend only.
24. Work must commence within 12 months of the application or the agreed timescale
sent out in the Loan Agreement. Should the work not be carried out in the agreed time
frame the Town Council must be informed and reserves the right to withdraw the offer.
25. The Town Council requires quarterly or six monthly progress reports, as stated in the
Loan Agreement, on the project and the use of the loan.
26. Applications for loans can be made at any time.
27. If loans are not repaid, any outstanding debts will be pursued and may result in legal
action including debtors being taken to court where all other means to secure
payment have failed.
External Borrowing
28. The Town Council acknowledges the importance of borrowing funds and the financial
impact on the Council and the local community. The Council will agree borrowing for
specific capital projects (as defined in section 16 of the Local Government Act 2003);
all borrowings must be approved by full council.
29. Approval for borrowing will be made following the appropriate guidelines and any
relevant Regulations applicable and in force at the of submitting the application, at the
time of drafting this strategy (February 2023) applications are made to the Secretary of
State via Somerset Association of Local Councils.
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30. Before a Council can borrow a sum of money, it must first receive an approval to
borrow (loan sanction) from the relevant Secretary of State, (unless it is for a sum
required temporarily to meet revenue expenditure).
31. The process to be followed and the criteria applied in deciding whether or not
approval should be forthcoming are detailed in the Guide to Parish and Town Council
Borrowing In England (jointly published by NALC and the Department)
32. The Town Council will apply the following criteria when considering requesting a
borrowing approval:
• The borrowing should only be used for the purposes of enabling a capital
project
• The borrowing amount should not be less than £5.00 multiplied by the number
of local government electors in the area covered by the Town Council on the
first day of the current financial year (1 April – 31 March)
• Any unallocated balances including, where appropriate capital receipts
beyond those required for the prudent financial management of the Town
Council, should be used in the project for which the borrowing is required.
• The Town Council should have a realistic budget for the servicing and
repayment of the debt, considering affordability and the future effect on the
council’s precept and cash flow.
• The Town Council must not mortgage or charge any of its property as security
for money borrowed.
• Any borrowing must reflect the priorities of the Town Council
33. Interest Rates
The Town Council will research in order to get best possible terms when borrowing but
will usually use the Public Works Loan Board (PWLB). (The Town Council feels that the
fixed term rates offered by the PWLB are relatively cheap and offer stability for the
financial planning of the Town Council).
34. Period Of Loan
The Town Council will determine the period of each loan which should not exceed the
period for which the expenditure is forecast to provide benefit to the Town Council i.e.
useful life of the asset.
The maximum period will begin on the date on which the money is borrowed, and will be;
• 50 years for acquisition of, or work on or to, land, buildings roads or structures
• 10 years in all other cases.
35. Current External Borrowing
The Town Council currently has a loan of £400,000 from the Public Works Loan
Board to provide grant funding towards the construction costs of the Wilstock Hub;
the approval of the Secretary of State was granted (borrowing approval reference
SRP 5/23/05 2024-25(038))

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36. Further Anticipated External Borrowing
The Town Council does not envisage the need for any further borrowing in
2025/2026 or 2026-2027
Investment Strategy
(Originally Approved by Town Council 15 August 2022 (Minute 96/2022) and then
subsequently incorporated into the Treasury Management Policy)
1. Introduction
1.1. The power to invest money is provided in section 12 of the Local Government Act
2003. Section 15 of that Act requires a local authority to have regard to such
guidance as the Secretary of State may issue. The current guidance is set out in
“Guidance on Local Government Investments” issued in 2018 by DHCLG.
1.2. The guidance applies to all local authorities in England, but insofar as parish and
town councils are concerned, those not expecting its investments to exceed £10,000
in any financial year can ignore the guidance, those expecting their investments to
exceed £100,000 are bound by it, and those in between have to decide the extent to
which they take it into account. North Petherton currently has funds available for
investment of around £250,000, and so is bound by the guidance
1.3. North Petherton Town Council acknowledges its responsibilities to the community
and the importance of prudently investing the temporary surplus funds held on
behalf of the community.
1.4. The Town Council will ensure it has adequate though not excessive cash resources
or standby facilities to enable it all times to have the level of funds available which
are necessary for the achievement of service objectives.
1.5. The Department of Communities and Local Government maintains that borrowing
monies purely to invest or lend and make a return is unlawful and the Town Council
will not engage in such activity.

2. Principles
2.1. The main thrust of the guidance is that the council should have an Investment
Strategy that is reviewed at least annually. The strategy then forms the basis
against which any particular investment decision is taken.
2.2. The objective of the strategy should be firstly to ensure that the funds invested are
secure, secondly that they will be available to the council as and when they are
needed, and lastly (and least importantly) that a good return is achieved. This is the
SLY approach – Security, Liquidity and Yield – in that order.
2.3. The Town Council will aim to achieve the optimum return on its investments
commensurate with proper levels of security and liquidity
2.4. In balancing risk against return, the Town Council will be careful to avoid risks rather
than maximise returns.
2.5. Investments are categorised into two types.
2.5.1. Specified investments – these are in sterling, are not long term, i.e. for greater
than 12 months, are not to be treated as capital expenditure, and are made with
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a body or in an investment scheme of high credit quality or with the UK
government or a local authority in England or Wales.
2.5.2. Non-specified investments – these are the rest.
2.5.3. The guidance also covers investments in non financial instruments, such as
property, but this is not likely to be relevant to local councils.
2.6. The guidance requires the use of non-specified investments to be closely prescribed
in the Strategy, setting out where, when and how they can be use and who has
authority to make decisions in relation to them.
2.7. In determining investment risk, the Strategy should make clear the extent to which
credit ratings are to be used, and if they are, the frequency with which they are
reviewed, and what other sources of information are to be used.
2.8. The Strategy should also cover the use of investment advisers and set out
procedures for determining the maximum period for which funds may prudently be
committed.
3. Investment Strategy
3.1. Subject to para 3.2 decisions on investing surplus funds should be made by full
council after having considered the advice of the Finance and General Purposes
Committee and the Responsible Finance Officer and should be in line with this
strategy.
3.2. Funds not needed immediately to meet on-going requirements can be invested in
the Council’s Reserve Account with its bank.
3.3. Where possible investments should be spread so that not more than £75,000 is
invested with a particular counter party at any one time, in order to take advantage
of the council’s inclusion the Financial Services Compensation Scheme.
3.4. No more than 40% of the council’s invested funds at any one time should be in nonspecified investments, and such investments should be denominated in sterling and
be with bodies with a credit rating at least equivalent to that of the Council’s banker.
3.5. All specified investments, will be made with a body or investment scheme which has
been awarded a high credit rating by a credit rating agency (i.e. Standard and
Poor’s, Moody’s Investors Service Ltd, Fitch Ratings Ltd). For the purposes of this
strategy “high credit rating” is an organisation with a credit rating of A or higher that
is domiciled in the UK or a sovereign rating of AA+ or higher for organisations
domiciled in a foreign country.
3.6. Before investing in an investment with a maturity date exceeding twelve months, the
council should consider a report from the RFO outlining the council’s likely funding
requirements.
3.7. The Town Council may use the following:
• Deposits with banks, building societies, local authorities or other public
authorities
• Other recognised funds specifically targeted at the public sector
3.8. The use of independent financial advisers is permitted if deemed advisable by the
RFO in conjunction with the Chairman of Council and the Chairman of the Finance
and General Purposes Committee. Where external investment managers are used,
they will be contractually required to comply with this Strategy.

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4. Quantative Indicators
4.1
The quantative indicators that allow Councillors and the public to asses a local
authority’s total risk exposure as a result of its investment decisions will be used as at
Appendix 1.
Definitions (from the Statutory Guidance on Local Government Investments)
Investments (S4)
The definition of an investment covers all of the financial assets of a local authority as well as other
non-financial assets that the organisation holds primarily or partially to generate a profit; for
example, investment property portfolios. This may therefore include investments that are not
managed as part of normal treasury management processes or under treasury management
delegations.
Specified Investments (S31)
An investment is a specified investment if all of the following apply:
• The investment is denominated in sterling and any payments or repayments in the respect of
the investment are payable only in sterling.
• The investment is not a long term investment. This means that the local authority has
contractual right to repayment within 12 months, either because that is the expiry term of the
investment or through a non-conditional option
• The making of the investment is not defined as capital expenditure by virtue of Regulation 25
(1) (d) of the Local Authorities (Capital finance and Accounting (England) Regulations 003
(as amended)
• The investment is made with a body or an investment scheme described as high quality (see
paragraph 33 [ of the Statutory Guidance] or with one of the following bodies:
i The United Kingdom Government
ii A local authority in England or Wales (as defined in section 23 of the 2003 Act) or a similar
body in Scotland or Northern Ireland; or
iii A parish or community council
Non Specified Investments (S35)
A non specified investment is any financial investment that is not a loan and does not meet the criteria
to be treated as a specified investment
Security (S26)
Protecting the capital sum invested from loss
Liquidity (S26)
Ensuring the funds invested are available for expenditure when needed

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Debt to net service expenditure (NSE)
ratio

Commercial income to NSE ratio

Investment cover ratio

Loan to value ratio
Target income returns

Benchmarking of returns

Gross and net income

Operating costs

Vacancy levels and Tenant exposures
for non-financial investments

Gross debt as a percentage of net
service expenditure, where net service
expenditure is a proxy for the size and
financial strength of a local authority.
Dependence on non-fees and charges
income to deliver core services. Fees
and charges should be netted off
gross service expenditure to calculate
NSE.
The total net income from property
investments, compared to the interest
expense.
The amount of debt compared to the
total asset value.
Net revenue income compared to
equity. This is a measure of
achievement of the portfolio of
properties.
As a measure against other
investments and against other
council’s property portfolios.
The income received from the
investment portfolio at a gross level
and net level (less costs) over time.
The trend in operating costs of the
non-financial investment portfolio
over time, as the portfolio of nonfinancial investments expands.
Monitoring vacancy levels (voids)
ensure the property portfolio is being
managed (including marketing and
tenant relations) to ensure

(Source: Statutory Guidance on Local Authority Investments (3rdEdition) )

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