Agenda item

(Director of Finance & ICT) To consider the attached report (AGC-015-2012/13).

The Director of Finance & ICT presented a report on the Treasury Management Strategy Statement and Investment Strategy for the period 2013/14 to 2015/16.

The Director reminded the Committee that the annual Treasury Management Strategy Statement and Investment Strategy was a requirement of the Chartered Institute of Public Finance & Accountancy (CIPFA) Code of Practice on Treasury Management, and covered the Council’s treasury activity for the financial years 2013/14 to 2015/16. This included the risks associated with the Council’s treasury activity and how they were being managed.

The Director stated that the Council undertook capital expenditure on long-term assets, which could be funded by capital receipts, the receipt of grants or borrowing. The Council currently did not plan to borrow to carry out its capital investment, and the Capital Programme envisaged a balance of £8.3million in capital receipts and £3.2million in the Major Repairs Reserve on 31 March 2016. Therefore, it could be concluded that adequate resources existed to fund the Capital Programme in the medium term.

The Director reported that the Council had borrowed £185.5million from the Public Works Loan Board to pay for the Housing Revenue Account self-financing initiative. This had been split into six separate loans, one variable rate loan of £31.8million maturing in ten years, four fixed rate loans of £30million maturing between 26 and 29 years, and a further fixed rate loan of £33.7million maturing in 30 years from now. This borrowing portfolio had been based on the Housing Revenue Account (HRA) 30-year Financial Plan and the maturities were linked to when the HRA would have the resources to repay the loans. It had also been envisaged that the Council would be incurring annual interest charges of £6.3million, but the borrowing had been obtained at lower than anticipated rates which had resulted in an £800,000 saving per annum.

The Director stated that, in respect of the Council’s current investments, all were denominated in Sterling and the Council received regular advice from Arlingclose, the Council’s Treasury Management consultants, regarding the use of counterparties. The Council currently had an investment portfolio of approximately £55.8million, of which £50.5million was invested in the UK and £5.3million in Money Market Funds that were based in Ireland for tax purposes. The maturity profile ranged from £15.8million available for instant access to £10million with a maturity date exceeding one year. The continued low interest rates, the use of fewer counterparties and the shorter durations of the Council’s investments had reduced the estimated investment income for 2013/14 to £446,000.

The Director advised the Committee of the three key risks associated with the Council’s Treasury Management function, and how these were being managed throughout the year:

·                     The Credit and Counterparty risk was the possibility of a counterparty going into liquidation and failing to meet its obligations to the Council, but the Council’s counterparty list was both prudent and regularly updated by the Council’s treasury advisors. The Council was currently keeping 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, however a number of Money Market Funds were maintained and the Director of Finance & ICT held monthly meetings with treasury staff to review the required cashflow.

·                     The Interest Rate risk was concerned with potential fluctuations in interest rates. It was proposed to maintain no more than 75% of its investments in variable rate financial instruments, with the remainder of its investments in fixed rate deposits. This would allow the Council to take advantage of any favourable changes in interest rates whilst also receiving a reasonable return. It was felt that interest rates were unlikely to change significantly in the short to medium term.

The Director 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. Draft regulations issued by the Chartered Institute for Public Finance & Accountancy had proposed that this interest rate should now be approved by the Council before the start of the financial year, and it was suggested that the average investment interest continue to be used as the rate for any inter-fund borrowing.

The Committee noted that a member of staff was acting up to cover the vacant Principal Accountant post that had responsibility for Treasury Management; recruitment to the vacant post would begin shortly. The Committee requested some background information about the individual appointed to fill the vacant Principal Accountant post on a permanent basis, given the level of investments that the individual would be responsible for. The Director reminded the Committee that the interest rates for the loans obtained from the Public Loans Works Board had been discounted, so it would cost the Council more in interest payments if the current loans were refinanced. The Committee welcomed the report and felt that the risks were being appropriately managed with sound advice being provided by the Council’s Treasury Management consultant, Arlingclose.

Resolved:

(1)        That the Council’s proposed Treasury Management Strategy Statement and Investment Strategy for the period 2013/14 to 2015/16 be noted;

(2)        That the arrangements for dealing with the risks associated with Treasury Management activity, as outlined in the Council’s proposed Treasury Management Strategy Statement and Investment Strategy, be considered adequate; and

(3)        That the proposed Treasury Management Strategy Statement and Investment Strategy for the period 2013/14 to 2015/16 be recommended to the Council for approval without further amendment.