For many local authorities, service pressures are no longer confined to budget monitoring reports. They are now feeding directly into treasury management. Rising expenditure in areas such as homelessness, temporary accommodation, adult social care and children’s services is creating greater uncertainty in the timing and scale of cash outflows. That makes liquidity management more difficult and increases the operational and strategic importance of treasury teams.
Treasury strategies are generally built on assumptions around the profile of income and expenditure, the availability of working capital, and the authority’s ability to manage temporary cash deficits through a combination of cash balances, internal borrowing and short-term external borrowing. Where in-year revenue pressures become more severe or less predictable, those assumptions can come under strain.
Revenue overspends do not automatically create an immediate treasury problem, but they often alter the authority’s cashflow position well before the year-end accounting impact is fully understood. Unbudgeted expenditure, faster payment outflows, delayed reimbursements, or uncertainty over grant timing can all reduce day-to-day liquidity. In practice, this can leave treasury teams managing tighter cash positions for longer periods and with less room for error.
Treasury risk emerges in several ways. Cash balances may fall below expected levels. The authority may need to borrow earlier than planned. Internal borrowing capacity may reduce unexpectedly. There may also be a greater risk of taking decisions reactively rather than strategically, especially where service pressures continue to worsen during the year.
In this environment, treasury management cannot be treated as separate from wider financial resilience. Revenue pressures can quickly become liquidity pressures, and liquidity pressures can then influence borrowing decisions, investment flexibility and overall risk appetite.
As liquidity tightens, authorities may rely more heavily on short-term borrowing to bridge temporary cash deficits. Used well, short-term borrowing can provide flexibility and help authorities avoid locking into longer-term debt too early. It can also support day-to-day cash management where pressures are temporary or timing related.
However, greater reliance on short-term borrowing brings its own risks. Refinancing risk increases if borrowing has to be rolled repeatedly. Exposure to interest rate movements becomes more immediate. Operational dependency on market access also rises, particularly where cash positions are tight and borrowing is needed at short notice.
Internal borrowing can also play an important role. Where cash-backed reserves and balances are available, using internal resources instead of taking new long-term debt may remain sensible and cost-effective. But internal borrowing is not a free option. Its capacity can reduce as usable cash balances fall, and its sustainability depends on the authority’s underlying liquidity remaining robust. Authorities that assume internal borrowing will remain available without regularly reassessing the cash implications may be taking more risk than they realise.
Authorities should be asking some straightforward but important questions. Are minimum liquidity levels still appropriate? Are treasury limits and indicators aligned with current operational reality? Is the current mix of internal and external borrowing still prudent? How resilient is the authority if expenditure pressures worsen or expected cash inflows are delayed?
In a more volatile environment, stronger cashflow forecasting is one of the most practical ways to reduce treasury risk. That does not mean producing ever more complex spreadsheets for their own sake. It means ensuring forecasts are timely, realistic, regularly refreshed and linked closely to the service and finance information that drives actual cash movements.
Authorities should place greater emphasis on short-term and medium-term forecasting accuracy, scenario analysis and escalation processes. Treasury teams need early visibility of emerging pressures, not retrospective confirmation once balances have already tightened. Forecasting should test downside cases, including delayed receipts, accelerated expenditure and sustained overspends in high-pressure services.
Monitoring also needs to be sufficiently frequent and dynamic. Monthly routines may not be enough where cash positions are moving quickly. Authorities should be clear about trigger points for action, including when to revise borrowing plans, when to preserve liquidity, and when to reassess the continued use of internal borrowing.
For authorities facing these challenges, there is clear value in reviewing how revenue pressure is feeding through into treasury management, and whether the current framework is still robust enough to cope.
Arlingclose can assist through:
08/05/2026
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