Agenda item

(Director of Finance & ICT) To consider the attached report (AGC-012-2012/13).

The Director of Finance & ICT presented the mid-year progress report on Treasury Management and Prudential Indicators, which covered the treasury activity for the first half of 2012/13, and was a requirement of the Chartered Institute of Public Finance & Accountancy (CIPFA) Code of Practice on Treasury Management.

The Director reported that the current probable outturn for 2012/13 showed a drop in capital expenditure of £3.4million, which had been re-phased into future years of the Capital Programme. This would lead to a reduction in the use of capital receipts in the current financial year of £1.01million and a higher than anticipated level of reserves, but subsequent increases in future years. There was a risk involved in reducing the balance of usable capital receipts over the next five years and this had been included in the Council’s Corporate Risk Register. Current predictions indicated there would still be £8.1million of usable capital receipts available and £3.2million in the Major Repairs Reserve at the end of 2016/17. Therefore, it had been concluded that there were adequate reserves available for the Capital Programme in the medium term.

The Director confirmed that, in respect of the Council’s indebtedness for capital purposes, there had been no breaches of the Authorised Limit (£200million), the Operational Boundary (£186million) and the Maturity Structure of Fixed Rate Borrowing during the first six months of the year. The Council’s largest loan had been that of £185.456million taken out for the refinancing of the Housing Revenue Account. The risks for the Council were associated with affordability, interest rates and refinancing. The affordability risk was whether the Council could afford to service its loans; this had been evidenced by the Council producing a viable thirty-year for the Housing Revenue Account. Only 17% of the amount borrowed was at a variable rate with the remainder of the loans at fixed rates. Any upward movement in interest rates would be ‘hedged’ by a corresponding increase in the interest earned on the Council’s investments. It was anticipated that all borrowing would be repaid upon maturity and all future capital expenditure would be financed from within internal resources, therefore there was currently no refinancing risk.

The Director informed the Committee that during the first half of the year, the Council’s average investment position had been approximately £53.6million, and that there had been no breaches of any of the prudential indicators. Finally, in respect of the Heritable Bank, the administrators had indicated that a further dividend would be paid in January 2013, and ultimately it was still expected that the Council would receive 90% of its total investment.

In response to queries from the Committee, the Director stated that the interest incurred by the Council on its variable rate loans should not exceed the interest earned on the Council’s investments. The thirty-year financial plan for the Housing Revenue Account was reviewed every six months by the Housing Scrutiny Panel, and further reports would be submitted to the Scrutiny Panel if the Plan no longer seemed viable. However, the Council had sourced most of its lending from the Public Works Loans Board at a lower rate than that available from commercial institutions.

Resolved:

1)         That the mid-year progress report on Treasury Management and the Prudential Indicators for 2012/13, and the management of the risks therein, be noted.