Agenda item

(Director of Resources) To consider the attached report (AGC-006-2016/17).

The Director of Resources presented the annual outturn report for the Council’s Treasury Management Function and Prudential Indicators in 2015/16.

The Director reminded the Committee that the annual Treasury Management outturn report was a requirement of the Council’s reporting procedures, and covered the treasury activity for 2015/16. There had been no breaches of policy during the year, and the risks associated with the Treasury Management function were highlighted along with how these risks were managed during the year.

The Director stated that, in constructing the Treasury Management Strategy Statement and Investment Strategy for 2016/17 to 2018/19, some very prudent restrictions had been applied to some classes of investments. It had become evident that these restrictions were too prudent and caused operational difficulties in managing the Council’s cash flow. Some minor changes had been proposed to the current limits for Local Authorities, Money Market Funds and the Council’s Banker, NatWest Plc, that would ease the operational difficulties without adding significantly to the risk profile of the Council’s investments.

The Director reported that this report was considered by the Finance and Performance Management Cabinet Committee at its meeting on 15 September and the Cabinet Committee was content to recommend the proposed changes to the Council’s Treasury Management Strategy Statement and Investment Strategy to Cabinet, pending comments from the Audit & Governance Committee this evening.

The Committee noted that the Council had continued to finance its capital programme through internal resources. The combined balances on Capital Receipts and the Major Repairs Reserve at the end of the year were broadly similar to the anticipated closing balances, which meant that the Council still had adequate resources going forward to finance its medium-term capital programme. The Council had procured no new borrowing and did not breach any of the treasury prudential indicators during the year.

It was felt that the report lacked evidence for the proposed changes to the Council’s Treasury Management Strategy Statement and Investment Strategy. The Director acknowledged this and explained that if the current limits were maintained than the Council would spend more time than was necessary managing its cash flow and undertaking transfers between accounts that were not really necessary. The main operational difficulty was trying to contain the balance on the NatWest account below the current limit of £2.5million, and increasing this limit to £5million would reduce the work needed to manage the cash flow. The Council’s Treasury Management Consultants, Arlingclose Limited, had no objections to the proposed changes provided the money was only left overnight and no fixed term deposits were made with NatWest Plc. The Director reassured the Committee that the Council had no fixed term deposits with NatWest Plc and did not intend to start doing so. It was highlighted that counterparty limits were reviewed each month.

The Chairman felt that the existing Strategy Statement was now possibly too risk adverse, and proposed that an annual review of the prudence levels within the Treasury Management Strategy Statement and Investment Strategy should be undertaken in future. The Committee concurred with this suggestion.

Resolved:

(1)        That the Annual Outturn Report on Treasury Management and the Prudential Indicators for 2015/16, and the management of the risks therein, be noted;

(2)        That the following changes to the Council’s Treasury Management Strategy Statement and Investment Strategy be recommended to the Council for approval:

            (a)        an increase in the group limit for Local Authorities from £20million to            £25million;

            (b)        an increase in the group limit for Money Market Funds from £15million         to £20million; and

            (c)        an increase in the limit for NatWest (the Council’s banker) from        £2.5million to £5million; and

(3)        That an annual review of Prudence Levels within the Council’s Treasury Management Strategy Statement and Investment Strategy be undertaken in future.