Agenda item

To receive the Treasury Management Mid - Year Report 2020-21.

The Committee considered the Treasury Management Mid-Year Report 2020-21.

During the discussion of this item, the following points were made:

·         It was one of three treasury management reports which went through Audit Committee and on to Council, the others being the Outturn Report and the Treasury Management Strategy.

·         The format of the report had been changed to make it more readable and accessible.

·         The statutory prudential indicators had not been breached.

·         The Chief Financial Officer had asked that the report demonstrated that the Council was on a secure financial footing.

·         The report demonstrated the level of debt that the Council held in terms of its overall internal and external debt, and the amount of that debt that was not funded by invest to save schemes or the income lines coming through the Council’s development programmes.

·         The cost that the council taxpayer had to fund was £7.52 for an average Band D property.  He explained how this figure was reached.

·         The debt financing costs in the Council’s Medium Term Financial Plan were £7.8m. 

·         Net indebtedness after cash balances was £83m at end of September.

·         The Government had provided some funding throughout the year to assist with cash flow, because of the pandemic.

·         The amount of debt taken on board and investment balances had increased.  Most of the money in the cash investments balances was a short-term hold based on the Council’s cash flow expectations.

·         Operational boundaries for debt and permitted debt levels had not been breached.  The Council had tried to convert a certain amount of internal borrowing to external borrowing ratio to what was recognised as an industry standard rate.  More debt had been taken on, but historically the Council had been under borrowed.

·         Councillor Sargeant commented that the report was much clearer.

·         Councillor Burgess commented that the Audit Committee was not a means of political point scoring and provided independent assurance.  She went on to ask whether the presentation of the cost of financing debt and the net position had changed from previous years.  The Head of Finance stated that the presentation had changed.  It represented that not all of the £7.8m gross figure was funded by council tax income, being mostly funded through other income streams from the commercial investments and the treasury investments, and invests to save. 

·         Councillor Burgess commented that the presentation of the net indebtedness had changed and asked whether the Covid funding would be time limited or spent in the near future, meaning that the net indebtedness would rise.  The Head of Finance indicated that the Government had given certain leeway as a result of Covid such as not having to pay all the business rates on a monthly basis.  The indebtedness levels would decrease and more detail would be provided in the Outturn report.

·         Councillor Burgess noted that the Value of Realisable Assets ratio to External Borrowing was 1.53:1, and asked the Head of Finance if he was comfortable with this level and what the lowest rate was that he would allow.  The Head of Finance indicated that he was comfortable with 1.53.1.

·         Councillor Shepard-DuBey stated that the loans had not been included in the Housing Revenue Account, and questioned how much a council tenant living in a Band D property would be paying.  The Head of Finance indicated that there was no distinction because the council tax base was assessed in the same way and that it would be £7.52.  Loans around the HRA were ring-fenced.  He would provide further information on the HRA.

·         Councillor Shepherd-Dubey questioned how interest that was charged on internal borrowing was reflected.  The Head of Finance emphasised that the opportunity cost around internal borrowing was currently very low. 

·         Councillor Gee asked why it was reasonable to show the financing cost offset against the General Fund, if borrowing was not undertaken for particular investments.  The Head of Finance emphasised that it depended on cash balances.

·         In response to a question from Councillor Gee regarding realisable assets, the Head of Finance explained that the Council had a form of asset cover for the level of indebtedness that it held.

·         Councillor Gee stated that in last year’s report, the cost of debt financing was similar to this year, £7.4m was the budget and £7.3m was the forecast.  However, the return on investment last year was only £3.5m-£4m.  She asked what had been offset this year that did not appear in the treasury management report last year.  The Head of Finance agreed to check and feedback to the Committee.

·         Councillor Gee commented that it was difficult to compare reports following the change in presentation.

·         With regards to net indebtedness, Councillor Gee asked why the particular ratio had been selected and was informed that it demonstrated the Council had sufficient cover for the assets that it held in the balance sheet and the true level of debt.

·         Councillor Burgess stated that borrowing was going to increase and including internal and external borrowing from reserves, this would go up to almost £700m in 2022/23.  She asked what impact the effect of Covid would have on the timing of this debt reducing.  The Head of Finance emphasised that the Council would remain within its levels for debt.  It was likely that the peak debt would be moved later due to Covid as would the time of repayment.  The pace of recovery of the country would have an impact.

RESOLVED:  That the Audit Committee:

1)    support this report and recommend it to Executive.

2)    note all approved indicators set out in the treasury management strategy have been adhered to and that prudent and safe management has been maintained.

3)    note that the net cost per council tax payer for the financing of all borrowing to date equates to £7.52 which is 0.4% of the average Band D council tax charge.

4)    note that the total external general fund debt is £324m, which reduces to £83m after taking into account cash balances (net indebtedness).

5)    note the Council’s realisable asset value of £496m, of which its commercial assets is estimated at £192m.