Agenda item

(Principal Accountant) To consider the attached report (AGC-009-2018/19).

The Committee was advised that the Council’s treasury activities were strictly regulated by statutory requirements and a professional code of practice (the CIPFA Code of Practice on Treasury Management), which includes a requirement for reporting on the treasury outturn on the financing and investment activity for the previous year

The Principal Accountant introduced the annual outturn report on the Treasury Management and Prudential Indicators for 2017/18, covering treasury activity for the year. Members noted that there had ben no breaches of treasury management policy during the year. The Committee 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 capital activity was the impact on reducing the balances of financial reserves to support the Capital Programme. This risk had the potential consequences of a loss of interest; loss of cover for contingencies; the financial strategy becoming untenable in the long-term; service reductions; and Council Tax increases;

·                 the Council’s underlying need to borrow (the Capital Financing Requirement (CFR)), gauged its debt position. The Council had borrowed £185.456m to finance payment to Government for Housing Self-Financing, which had resulted in the CFR becoming an overall positive CFR (Housing revenue Account ((HRA) and Non-HRA).  No further borrowing was incurred in 2017/18; and

·                 the Council did not breach the Authorised Limit (set at £250m for 2017/18) or the Operational Boundary (set at £240m for 2017/18) and the Maturity Structure of Fixed Rate Borrowing (restricted to 30 years and below).

The Committee sought an example of the credit and counterparty risk where a risk of failure of a third-party might occur. The Principal Accountant advised members that the credit and counterparty risks were reviewed on a regular basis by the Council’s treasury advisor, who also advised the authority on what risks or companies, banks etc. it should avoid. Members also raised the issue of the working capital balance, which was a lot lower than budget, and whether this reflected a snapshot balance or was a typical level of balance. The Principal Accountant reported that the working capital fluctuated on a regular basis.

Members noted that non-HRA capital expenditure showed a significant variation between the original budget and the actual spend. The Principal Accountant advised that this could relate to slippage from previous years as the original budget was already set, or that it could be that further investment had been sought. The Committee also noted that HRA expenditure was underspent by roughly the same amount, which balanced the variation and the Principal Accountant confirmed that he would provide a separate explanation of these issues to all members of the Committee.

The Committee considered interest rate risks and the Council’s ability to receive ‘reasonable’ rates on investments at fixed rates, and queried the level of a reasonable rate given that rates were currently low. The Principal Accountant advised the Committee that the Council was trying to keep its investments as short-term as possible, but that this approach did give a minimal amount of investment income in return. Members were advised that, by not going out into the borrowing market, the Council was saving money by not having to borrow at a higher rate than on investments. The Committee suggested that the word ‘reasonable’ was ambiguous and requested that an explanation of the significant variations between the initial budget proposal and actual outcome, be provided when the Treasury Management and Prudential Indicators report was considered by the Finance and Performance Management Cabinet Committee.

The Committee considered that it would also be helpful for members to be provided with a clearer narrative on how treasury management activity complemented the Council’s investment strategy and risk appetite, as otherwise it was difficult to evaluate the information and how appropriate it was for the Council given its existing strategy. The Principal Accountant confirmed that such information would be included in future reports to be made to the Committee.

RESOLVED:

(1)        That the risks associated with the Council’s treasury management activity during 2017/18 be noted;

(2)        That the Chief Finance Officer provide an explanation of the significant variation between the initial budget proposal and the actual outcome, to the next meeting of the Finance and Performance Management Cabinet Committee; and

(3)        That no other comments or suggestions on the Council’s treasury management activity during 2017/18 be made to the Finance and Performance Management Cabinet Committee.