Agenda item

(Finance & Economic Development Portfolio Holder) To consider the attached report (C-019-2009/10).

(1)        That the 2008/09 outturn for Prudential Indicators within the report be approved; and

(2)        That the Treasury Management Stewardship Report for 2008/09 be noted.

The Portfolio Holder for Finance & Economic Development presented the annual report on the Treasury Management Service and Actual Prudential Indicators for 2008/09.

The Portfolio Holder advised the Cabinet that the report had met the requirements of both the Chartered Institute for Public Finance & Accountancy Code of Practice on Treasury Management and Code for Capital Finance in Local Authorities. The Council was required to comply with both Codes through Regulations issued under the Local Government Act 2003. During 2008/09 the Council complied with its legislative and regulatory requirements, whilst the actual prudential indicators for the year had been:

(i)         Actual Capital Expenditure                                                                  £10.474m;

(ii)        Capital Financing Requirement                                                          -£784,000;

(iii)       Ratio of Financing Costs to net Revenue Stream (Non HRA)           -10.37%;

(iv)       Ratio of Financing Costs to net Revenue Stream (HRA)                   -10.74%;

(v)        Authorised limit for external debt                                                        £0m; and

(vi)       Operating Boundary for external debt                                     £0m.

The Portfolio Holder reported that the financial year of 2008/09 had presented difficult circumstances with regard to treasury management.  The downturn in the economy, coupled with the increased counterparty credit risk presented the Council with additional issues not normally encountered. The main implications of the exceptional circumstances have been the sums at risk with Icelandic institutions; the declining investment returns although income in 2008/09 had met the revised forecast; and the increase in counterparty risk, with the reduction in the number of counterparties that the Council could use. At 31 March 2009, the Council’s external debt was nil whilst its fixed investments totalled £55.789m.

It was reported to the Cabinet that when the Council’s current deals matured, lower interest rates would be offered for future investments due to the current state of the economy. The credit ratings employed by the Council were based upon three separate lists, with the lowest (worst) rating used by the Council. The counterparty list had been further restricted when the Treasury Management Strategy had been reviewed in February 2009; the Council was currently only investing with British institutions, although there were some European banks on the counterparty list. The Administrators for the Heritable Bank were still reporting a return to investors of 80p for every £1 originally invested.

The Portfolio Holder reported that the current contract with the Council’s external Treasury Management advisors would expire in May 2010, and that it was right for the Council to adopt a cautious approach to its investments whilst the current economic recession continued.

Decision:

(1)        That the 2008/09 outturn for Prudential Indicators within the report be approved; and

(2)        That the Treasury Management Stewardship Report for 2008/09 be noted.

Reasons for Decision:

To comply with the requirements of both the Chartered Institute of Public Finance & Accountancy Code of Practice on Treasury Management and Prudential Code for Capital Finance in Local Authorities. The Council was also required to comply with both codes in accordance with regulations issued under the Local Government Act 2003.

Other Options Considered and Rejected:

No other course of action other than to comply with the Codes of Practice.