Agenda item

(Director of Finance & ICT) To consider the attached report (AGC-027-2013/14).

The Principal Accountant presented a report on the Treasury Management Strategy Statement and Investment Strategy 2014/15 to 2016/17, which was a requirement of the Chartered Institute of Public Finance and Accountancy (CIPFA) Code of Practice on Treasury Management and covered the treasury activity for the financial years 2014/15 to 2016/17. This included the risks associated with the Council’s treasury activity and how they were being managed.

The Principal Accountant stated that the Council undertook capital expenditure on long-term assets, which could be funded by capital receipts, grants or borrowing. The Council currently did not plan to borrow to carry out its capital investment, and the Capital Programme envisaged a balance of £3.864million in capital receipts and £4.143million in the Major Repairs Reserve on 31 March 2017. Therefore, it could be concluded that adequate resources existed to fund the Capital Programme in the medium term. The Committee was reminded that the Council had borrowed £185.456million from the Public Works Loan Board to pay for the Housing Revenue Account self-financing initiative. The borrowing portfolio had been based on the Housing Revenue Account (HRA) 30-Year Financial Plan and the maturities were linked to when the HRA would have the resources to repay the loans.

The Principal Accountant reported that, in respect of the Council’s current investments, all were denominated in Sterling and the Council received regular advice from Arlingclose, the Council’s Treasury Management consultants, regarding the use of counterparties. The Council currently had an investment portfolio of approximately £61million, of which £51million was invested in the UK, £2million in Money Market Funds that were based in Ireland and £8million in Sweden. The maturity profile ranged from £16million available for instant access to £10million with a maturity date exceeding one year. The continued low interest rates, the use of fewer counterparties and the shorter durations of the Council’s investments had reduced the estimated investment income for 2014/15 to £399,000.

The Committee was advised of the three key risks associated with the Council’s Treasury Management function, and how these had been managed throughout the year:

·                     The Credit and Counterparty risk was the possibility of a counterparty going into liquidation and failing to meet its obligations to the Council, but the Council’s counterparty list was both prudent and regularly updated by the Council’s treasury advisors. The Council was currently keeping its investments fairly liquid within a restricted counterparty list.

·                     The Liquidity risk was the possibility that sufficient cash would not be available to the Council when required, however a number of Money Market Funds were maintained and the Director of Finance & ICT held monthly meetings with treasury staff to review the required cashflow.

·                     The Interest Rate risk was concerned with potential fluctuations in interest rates. It was proposed to maintain no more than 75% of its investments in variable rate financial instruments, with the remainder of its investments in fixed rate deposits. This would allow the Council to take advantage of any favourable changes in interest rates whilst also receiving a reasonable return. It was felt that interest rates were unlikely to change significantly in the short to medium term.

The Principal Accountant informed the Committee that the Council had borrowed between the General Fund and Housing Revenue Account for many years, and the interest rate charged had been based upon the average investment interest earned for the year. Draft regulations issued by CIPFA had proposed that this interest rate should now be approved by the Council before the start of the financial year, and it was suggested that the average investment interest continue to be used as the rate for any inter-fund borrowing.

The Director of Finance & ICT added that there were a number of different development opportunities around the District, which could lead to capital expenditure by the Council. Therefore, it was felt appropriate to increase the boundaries for debt and borrowing at the current time; it was proposed to increase the authorised limits for borrowing and external debt to £230million and the operational boundaries to £219million. The Chairman was concerned that if the borrowing limit was increased to allow for anticipated capital expenditure then it should be reviewed again for possible reduction if the capital projects did not proceed as planned. The Director reassured the Committee that the borrowing limits were routinely monitored against the perceived need for expenditure and the progress of any capital schemes which required additional borrowing would be reported to the Committee through the Mid-Year report on Treasury Management, normally considered at the November meeting.

Resolved:

(1)        That the Council’s proposed Treasury Management Strategy Statement and Investment Strategy for the period 2014/15 to 2016/17 be noted;

(2)        That the arrangements for dealing with the risks associated with Treasury Management activity, as outlined in the Council’s proposed Treasury Management Strategy Statement and Investment Strategy, be considered adequate; and

Recommended:

(3)        That the proposed Treasury Management Strategy Statement and Investment Strategy for the period 2014/15 to 2016/17 be recommended to the Council for approval without further amendment.