The rate paid to local authorities for deposits with the Debt Management Office has moved even closer to zero following another cut.
Room151 understands that the DMO has cut its rate on its Debt Management Account Deposit Facility (DMAF) for terms of three month or less from 15 to 10 basis points (bps).
This brings it into line with the rate for the longer term deposits offered by the DMO — between three and six months.
However, David Green, client manager at treasury adviser Arlingclose, said that the cut might not have a significant effect on local authority investment strategies.
He said: “If you look at the market alternatives, the rates have also come down, so there is not a huge change in the differentials.”
According to Department for Communities and Local Government figures, local government had a total of £472m invested with the DMO at the end of September 2016 — the latest period for which statistics are available.
This was up from £425m in the previous quarter, but is much lower than the peak £2.5bn invested in the DMAF at the end of 2008/09.
Since that point, councils have moved short-term cash away from the DMO into other instruments such as money market funds.
Money held in MMFs has grown from £1.2bn in 2009 to £7.2bn in September last year.
However, Green said that the DMO facility was still attractive to the most risk averse local authorities.
He said: “It is the ultimate safe haven and is very easy to use — you don’t have to get a custody account set up. Other councils may choose to use it because they think banks are evil.”
Welsh councils have a proportionally higher level of investment with the DMO compared to those in England, Scotland and Northern Ireland.
Green said: “Wales, unlike the rest of the UK, classes MMF investment as capital expenditure, meaning they have to set revenue resources aside to cover interest payments.”
A spokesperson for the DMO said it did not make the rate publicly available when approached by Room151.
The DMO accepts deposits ranging from overnight to six months.
