Agenda item

(Director of Resources) To consider the attached report (AGC-011-2014/15).

The Director of Resources presented the Annual Outturn Report on Treasury Management and Prudential Indicators for 2013/14.

The Director stated that the annual Treasury Management outturn report was a requirement of the Council’s reporting procedures. It covered the treasury activity for 2013/14 and confirmed that there were no breaches of policy during the year. The Council did not plan to borrow to carry out its capital investment programme. The balances for Capital Receipts and the Major Repairs Reserve were higher than expected, and it could be concluded that the Council had adequate resources for its Capital Programme in the medium term.

The Director reported that the Council’s underlying need to borrow was called the Capital Financing Requirement (CFR),and gauged the Council’s debt position. The Council’s CFR at 31 March 2014 was £184.7million after borrowing £185.456million for the self-financing of the Housing Revenue Account, and did not breach the Authorised Limit set at £200million, the Operational Boundary of £188million, and the Maturity Structure of Fixed Rate Borrowing restricted to 30 years or less. A viable Thirty-Year Financial Plan had been produced to service the loans and was regularly reviewed by Officers and Members. Only 17% of the amount had been borrowed at a variable rate of interest with the remainder borrowed at fixed preferential rates. Within the Financial Plan, it was anticipated that all borrowing would be repaid upon maturity and all future capital expenditure financed through internal resources. The Council had £56.7million invested as of 31 March 2014, and none of the Prudential Indicators had been breached during 2013/14.

The Director explained how the Council’s actual borrowing had marginally exceeded the CFR by £750,000, which equated to less than 0.5% of the Council’s total borrowing, but that this would reduce. The Council’s possible borrowing requirements over the next 6 to 9 months was also emphasised for projects such as the Epping Forest Shopping Park in Loughton and the redevelopment of St John’s Road in Epping. The Committee felt that a note should be added to the Outturn Report highlighting that the Council’s general need to borrow money was increasing. The Council had received 94% of its original investment with the Heritable Bank, and further distributions were expected from the Administrators.

The Director informed the Committee that service providers could benefit from the Council providing ‘Prudential Borrowing’. This issue had been discussed during the competitive dialogue for the new Waste Management Contract as a possible option for the bidders, but the Council’s preferred supplier Biffa had originally stated that this would not be required. However, on 16 September after they were awarded the contract, they requested loans of £1.25million in November 2014 and £3.4million in April 2015. Previously, Sports & Leisure Management, who had run the Council’s leisure centres for the last ten years, had offered discounts on their management fees in return for capital borrowing from the Council. The Waste Management contract would run for 10 years and was worth in excess of £150million; considerable financial checking of Biffa had been performed before they were granted the Contract. The Council would seek to secure the loan against any assets procured by the Contractor, and the loan documents would be separate to the actual service contract. There were advantages to both parties: Biffa would pay less for their borrowing; and the Council would earn a better return than the Money Markets were currently offering. The Treasury Management Statement would require amending to permit lending to service providers that the Council was in a contractual relationship with.

In response to questions from the Committee, the Director stated that Biffa wanted to borrow the monies over a period of 5 years, but could not give an explanation for their volte-face regarding borrowing monies from the Council. The Committee felt that the general principle was sensible for both parties if the contractor was financially sound, but that the Council would need a policy to cover Prudential Borrowing to define the parameters of any future lending. The Director stated that it was intended to offer a similar facility to the bidders during the competitive dialogue process for the new Leisure Management Contract, and that a policy could be drawn up for the Committee to consider as part of the report on the Treasury Management Investment and Strategy Statements,  scheduled for the meeting in February 2015.

Resolved:

(1)        That the Annual Outturn Report on Treasury Management and the Prudential Indicators for 2013/14, and the management of the risks therein, be noted; and

(2)        That a policy on the provision of Prudential Borrowing to Service Providers with which the Council had a contractual relationship with be drawn up and considered by the Committee at its meeting scheduled for 5 February 2015, as part of the report on the Treasury Management Investment and Strategy Statements.