Navigating the New Normal
Local authorities are once again entering the annual cycle of treasury strategy and capital budget setting at a time when the financial landscape remains complex and uncertain. While the recent fall in PWLB rates has provided some short-term relief, this should not be mistaken for a structural return to lower borrowing costs. Market expectations remain volatile, gilt yields have eased only marginally, and the broader economic outlook continues to point to a period of sustained funding pressure.
Against this backdrop, it is essential that authorities use this strategy-setting period to take stock of their borrowing, investment, and liquidity positions. High borrowing costs, constrained short-term liquidity, and rising capital demands require a renewed focus on balance sheet resilience and long-term affordability. Now is the time for treasury teams to look beyond immediate funding needs and ensure that their strategies are aligned with evolving market conditions and financial objectives.
Active Treasury Management: Beyond Routine Borrowing
Effective treasury management goes beyond timing individual loans. It is about maintaining an agile and well-balanced debt portfolio.
A structured review can help identify opportunities to restructure high-cost PWLB loans, smooth maturity profiles, or refinance legacy market debt where the economics are favourable. Even when restructuring is not immediately viable, understanding the full risk and cost profile of the portfolio in conjunction with future cash flow needs enables more informed decision-making.
Strengthening Cash Flow and Liquidity Management
With liquidity tight across the sector, high-quality cash flow forecasting is now essential. Moving from static annual projections to a rolling 12–24 month view helps identify funding gaps earlier and supports better investment decisions, avoiding the year-end scramble that has characterised recent years.
Diversifying Funding Sources
Relying solely on the PWLB may limit flexibility and increase long-term costs. A more diversified approach can provide resilience, although the market for alternative funding sources remains narrow, meaning the PWLB continues to be the primary option for most authorities.
For capital programmes with clear environmental or social outcomes, green and sustainability-linked bonds can open access to new investors and potentially improve pricing. Co-funding models with housing associations or institutional investors can also help share costs and risk. Authorities should also consider the role of the National Wealth Fund in supporting eligible projects.
Applying Asset and Liability Management Discipline
Adopting private-sector-style Asset and Liability Management principles can help align borrowing, investment, and operational strategies.
That means actively reviewing underused assets, rationalising property portfolios, and targeting invest-to-save projects that deliver measurable financial or service benefits.
Many councils are undertaking this kind of active review of both sides of the balance sheet as capital programmes begin to take shape.
Scenario Planning and Stress Testing
Uncertainty is a given. What matters is preparedness. Running scenarios on interest rates, liquidity constraints, and refinancing risks allows authorities to understand their exposure and plan responses. Integrating these insights into the Medium-Term Financial Plan builds resilience and supports evidence-based decision-making.
The tools available through our Teams platform enable this type of analysis, and we are always available to assist in preparing scenarios to support effective planning.
The Case for a Strategic Review
Persistent high borrowing costs and tight liquidity are unlikely to disappear quickly. This is the right moment for authorities to take a strategic, forward-looking view of their funding and treasury position, identifying opportunities, mitigating risks, and strengthening long-term financial resilience.
At Arlingclose, we work with local authorities across the UK to review funding strategies, optimise debt portfolios, and model long-term scenarios under a range of market conditions. Our approach combines deep market insight with practical implementation support, helping finance teams make confident, well-informed decisions in a complex environment.
Speak to your Arlingclose client contact to discuss how we can help you assess and strengthen your authority’s treasury and funding strategy.
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