Agenda item

(Director of Resources) To consider the attached report (AGC-018-2014/15).

The Committee considered a comprehensive report in respect of the Council’s Treasury Management Strategy Statement and Investment Strategy for 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 authority’s treasury activity for the financial years 2014/15 and 2016/17. The Strategy Statement set out the risks associated with the Council’s treasury activity and how these were managed.

The Principal Accountant reported that the Council undertook capital expenditure on long-term assets, funded by capital receipts, grants or borrowing. Members noted that the Council did not currently plan to borrow to carry out its capital investment, and that the Capital Programme envisaged a balance of £3.022 million in capital receipts and £2.043 million in the Major Repairs Reserve on 31 March 2018, from which it was concluded that adequate resources existed to fund the Capital Programme in the medium-term.

Members were reminded that the Council’s current investments were subject to regular advice from it’s treasury management advisors, regarding the use of counterparties. Members noted that the Council currently had an investment portfolio of £63.3 million, of which £55.3 million was invested in the United Kingdom, £2million in Money Market Funds that were based in Ireland and £8million in Sweden. The Committee noted that the maturity profile of the investments ranged from £24.3 million available for instant access, to £5 million with a maturity date exceeding one year, and that it was important that the cash flow of the Council was carefully monitored and controlled to ensure that sufficient funds were available each day to cover its outgoings. Members were advised that this would become more difficult as the Council used up capital receipts and investment balances reduced.

The Principal Accountant advised members of the key risks associated with the Council’s treasury management activity, and how these had been managed throughout the year through the use of prudential indicators:

·                 the Credit and Counterparty risk was the possibility of a counterparty going into liquidation and failing to meet its obligations to the Council. The Council’s counterparty list was both prudent and regularly updated by its treasury advisors, and the authority kept 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. In mitigation of the risk, a number of Money Market Funds were maintained and the Director of Resources held monthly meetings with treasury staff to review cashflow requirements; and

·                 the Interest Rate risk was concerned with potential fluctuations in interest rates. It was proposed to maintain no more than 75% of the Council’s investments in variable rate financial instruments, with the remainder of the investments made in fixed rate deposits. This approach would allow the Council to take advantage of any favourable changes in interest rates whilst also receiving a reasonable return. The Council’s treasure management advisors considered 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. Regulations issued by CIPFA required that this interest rate should be approved by the Council before the start of the financial year, and it was proposed that the average investment interest continue to be used as the rate for any inter-fund borrowing.

Members noted that the Treasury Management Strategy Statement and Investment Strategy would be considered by the Council at its meeting on 17 February 2015, and that the views of the Committee in respect of the authority’s management of the risks associated with its treasury management activity, would be reported to the Council meeting. The Finance Portfolio Holder, Councillor S. Stavrou, encouraged all members to participate in the training course that the Council offered to increase understanding and awareness of treasury management activity and responsibiliies.

At the request of the Committee, the Principal Accountant undertook to provide the Committee with details of the level of investment made with the Council’s main counterparties and the return on such investments, as this information was not contained within the report. The Director of Governance advised members that it would be necessary to assess the likely sensitivity of this information, which might need to be provided to members on a strictly confidential basis.

Resolved:

(1)       That the Council’s arrangements for the management of the risks associated with its treasury management activity, as set out within the proposed Treasury Management Strategy Statement and Investment Strategy for 2015/16 to 2017/18, be noted; and

(2)       That the Committee’s endorsement of the  Treasury Management Strategy Statement and Investment Strategy be reported to the Council.