Agenda item

Annual Outturn Report on the Treasury Management and Prudential Indicators 2016/17

(Director of Resources) To consider the attached report (AGC-008-2017/18).


The Director of Resources, Mr Palmer introduced the annual outturn report on the treasury management and prudential indicators for 2016/17. This was a requirement of the Council’s reporting procedures. It covered the treasury activity for 2016/17 and confirmed that there were no breaches of policy during the year.


It was noted that:

·         The Council had planned to borrow to finance the capital programme. However, an underspend on the programme and the availability of sufficient cash had allowed the external borrowing to be deferred.


·         The risk involved with the Capital Activity is the impact on reducing the balances of financial reserves to support the capital programme. This risk has the following potential consequences: loss of interest; loss of cover for contingencies; financial strategy becoming untenable in the long run; service reductions required; and Council Tax increases required.


·         The Council’s underlying need to borrow is called the Capital Financing Requirement (CFR).  This figure is a gauge for the Council’s debt position. The Council has borrowed £185.456m to finance the payment to Government for Housing Self-Financing.  This resulted in the Council’s CFR becoming an overall positive CFR (HRA and Non-HRA). No further borrowing was incurred in 2016/17.


The Council did not breach any of the following indicators:


(a)        the Maximum Upper Limit for Fixed Rate Exposure during 2016/17 was 83% for Debt and 61% for Investments (limit set at 100%) and Maximum Upper Limit for Variable Rate Exposure during 2016/17 was 17% on Debt and 39% on Investments (limit set at 25% and 75% respectively);


(b)        the maximum amount of the portfolio being invested for longer than 364 days was £0m (limit set at £15m); and


(c)        the maximum limit set for investment exposure per country outside of the UK was £5m. Average £2m in Sweden. Standard Life MMF is domiciled in Guernsey, so is also Non-UK. Average £5m.


Interest Rate Risk – the risk of fluctuations in interest rates. The Council     allows a maximum of 75% of its investments to be invested in variable rates, and the remainder are in fixed rate deposits.  This allows the Council to receive reasonable rates, whilst at the same time, gives the Council flexibility to take advantage of any changes in interest rates.


The Council has continued to finance its capital programme through the use of internal resources. Whilst the capital receipts reserve had been fully exhausted, it was anticipated that future right to buy sales would fund some part of the programme, and the Major Repairs Reserve would be available to support the on-going capital maintenance of the housing stock, before the need to borrow arises sometime late into the 2017/18 programme. The Council did not breach any of the treasury prudential indicators during the year.


Councillor Knapman asked for an update on the shopping centre as its one of the two main risks that had been identified. Mr Palmer noted that we had incurred some delays around the highways works and difficulty with the County Council. These issues have all been resolved now. Several of the units are now open and trading, and most of leases have been signed. The park will be fully let and this will conclude in a very favourable outcome for the Council.


Councillor Knapman then asked about HRA borrowing, were we confident that we would be able to finance that for the period of the loan. Was this correct? Mr Palmer agreed saying that the exact repayment strategy would be determined by what members wanted to do with the next phases of the housebuilding programme. A report will be going to Cabinet on this matter. Councillor Knapman asked that Mr Palmer report back to this meeting to inform them of what was going on in this area, as they would like updates on this so they could see how the loan repayments were affecting the housebuilding programme.


Councillor Jennings asked when we would get to a stage where using our reserves would become critical; as interest rates were low and our investments were not yielding that much. Mr Palmer replied that because of the extended period of very low interest rates that members took the decision to invest in capital projects such as the retail park and buy out our initial partner for the site. We have been looking for opportunities, over time, to invest our assets and earn a higher return on them. To use our returns and run down our investment balances.


Councillor Knapman asked what our return would be on the shopping park. Mr Palmer said that the annual value of the rental income would be around £2.5 million, with the construction costs around £30 million. We would also benefit from the national non-domestic rates from the units there. Councillor Knapman said that it was a better return than if we just left it in a bank. Mr Palmer agreed and also noted the economic regeneration that would bring to that area and the district as whole.


The Audit and Governance Committee considered that the risks associated with Treasury Management had been dealt with during 2016/17 and noted that there was more risk now that the Council used to have when it had decent rates of return on interest; the Council had taken some risk as it demonstrated that it got a better return than just investing it in the banks earning low interest; the Committee agreed that it was relatively comfortable with this state of affairs.


They were content with the position as it was now but the Committee would be keeping its eye on HRA borrowing and the housebuilding programme. If this was continued then the committee would have to anticipate what would mean for the district and if the council should rely on market forces to build houses or would the Council have to step in with a clear programme for housebuilding.




That the Audit and Governance Committee had considered the report and were happy that the Council was not taking undue risks at this time, was in a fairly good financial position and recognised that it would be moving into a period where it may have to borrow. But the Committee was happy the Council was getting a good return for its initial investments.

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