Agenda item

To receive the Treasury Management Stratey 2021/24.

The Assistant Director Finance presented the Treasury Management Strategy 2021/24.

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

·       The report formed part of the Council’s budget setting process and was forward looking.

·       In the prudential limits it was the Council’s parameters for borrowing and investing by the Finance Treasury Team that the Committee was asked to review.

·       The style of presentation had changed to make the report less technical and more easy to read.

·       Members were informed that an addendum of some additional changes had been circulated. 

·       He commented that the series of ratios of financing costs to net revenue streams detailed on page 59 of the agenda has also been amended.  They were now 1.03%, 0.36% and 0.30%.  The first one (1.03%) was based on a firm recommended budget to Council and the other two were based on the indicative budget and would be revised and reviewed prior to the following year’s Medium Term Financial Plan.

·       The Assistant Director Finance highlighted the following key changes to the Strategy which were to enhance the options available to the treasury team for daily management of cash funds, short term investing and borrowing.

Ø  The option to be able to open a deposit account, with our transactional bank provider which will increase capacity to invest money in the short term (increase liquidity), particularly during current times of cashflow uncertainty.

Ø  To increase the money market (liquid funds) limit from £5million to £10million which will increase capacity to invest money in the short term (increase liquidity), particularly during current times of cashflow uncertainty.

Ø  The option to issue a local authority bond to raise borrowing as an alternative to traditional markets such as PWLB.

·       Councillor Burgess asked about the net benefit from borrowing figure, which represented a change in Treasury Management reporting.  At previous Committee meetings Members had been told that the net cost of borrowing was £7.52 per taxpayer, but now the cost of borrowing created a net benefit of £13.64.  She questioned what relevance the treasury investment income had to the cost of borrowing.  The Assistant Director Finance commented that it had moved to £13.64 because when the Treasury Management Mid Year report had been produced it was only taking out the cost of borrowing and the cost of borrowing was based on the budgeted costs of debt finance within the budget.  The amount that had come in from the invest to save and income generation projects had been extracted.  The whole impact effects of those projects had not been included.  A more realistic position would be to show not just the amount of money that the projects had generated to offset the debt financing cost, but the whole benefit to the Council.  Providing more information provided a fuller, more transparent picture of the Council’s situation.

·       It was prudent to offset the treasury investments because there were two potential budget lines within the Treasury department: the cost of borrowing and the return on investment.  When establishing the net cost of borrowing, the money received from investments, invest to saves and regeneration projects was taken off.  The net credit that these projects generated were also shown.

·       Officers were providing a picture of the actual impact of borrowing on the taxpayer.

·       Councillor Burgess commented that in the past the Committee had been provided with a summary of external borrowing, internal borrowing and also a total borrowing figure.  She questioned why the presentation of this had changed and if the total borrowing figure was rising up to £678m by 2023/24.  The Assistant Director Finance commented that in terms of supporting the Capital Programme it was the level of borrowing that the Council would be moving to but that this figure also included internal borrowing.

·       With regards to the investment strategy Councillor Burgess asked how the Finance Team assessed the risk of negative interest rates in terms of likelihood and the impact that it would have, and was informed that Officers tried to avoid using negative interest rates hence the request to increase the amount that could be put into money market funds.

·       Councillor Burgess asked if there was a limit to how low the Council’s instant access cash balances could fall.  The Assistant Director Finance indicated that the Council had a managed cash flow position and Officers sought to set a daily balance that left approximately between £100,000-200,000 for any emergency transactions.  It was based on the liquidity of funds.

·       Councillor Sargeant praised the presentation of the report.  With regards to the asset value, debt levels and repayment profiles, he questioned what valuation methods had been used for assets.  The Assistant Director Finance commented that the asset value was shown as per the balance sheet.  The Chief Accountant added that in terms of asset value, the balance sheet had been used and the capital programme for the next 3 years added to give the £1.4billion of asset value.  Assets included investment properties which were reviewed every year at market value, and schools and roads which were valued on replacement cost.  The increase over the 3 years was mirrored by an increase in an investment in the Capital Programme.  Members were reminded that if the Council tried to sell some of the assets and realise a capital receipt for them, it would potentially be a higher value.  For example, with land you could potentially get planning permission which would boost the value of the asset.

·       Councillor Gee suggested that the total borrowing figures were now slightly different due to changes made.  Officers agreed to look at this.

·       Councillor Gee asked about the financing cost and net revenue stream that was predicted last year compared to this year.  She questioned whether the basis for calculating this had changed between this year and last year.  She asked whether income from treasury investments had been included in the previous year’s calculation, and if the housing, economy and local regeneration had also been included.  The Assistant Director Finance indicated that the calculation had changed this year.  The annual financing costs were £2.1million but the gross level of expenditure that was divided by had changed.  The net revenue streams were the amount estimated to be met from Government grants and taxpayers.  The gross revenue expenditure was part of a balanced budget.  The Council set a budget which was offset where the expenditure equalled the income. 

·       Councillor Gee commented that it would have been helpful to redo the calculation for the previous year.  She asked what income was under housing, economy and local regeneration.  It was noted that this was money coming in from the regeneration projects.  Rental income was used to partly repay financing costs.

·       Councillor Gee questioned the inclusion of rental income.  The Assistant Director Finance explained how the CIPFA Code had been complied with.

·       Councillor Gee queried how the numerator had changed.

·       With regards to the benefit per Band D property, Councillor Gee questioned whether the cost of managing properties, the cost of commercial investment or treasury investment and the direct cost of staff, were included.  The Assistant Director Finance stated that the Treasury team were funded by the Medium Term Financial Plan.

·       The Chief Accountant agreed to provide a breakdown of realisable and non realisable assets.

·       In response to a question regarding the investment portfolio, the Assistant Director Finance indicated that part of this was included in housing, economy and local regeneration and also in commercial investments.  Councillor Shepherd-DuBey commented that the Council should not be investing in properties outside of the Borough.  The Assistant Director Finance stated that the Government policy on investing outside a local authority area had been amended and the Council was in compliance with this amendment. 

RESOLVED: That

1)     the Committee supports this report including the changes included in the addendum contained within the supplementary agenda, and recommend it to Executive on 18 February 2021. (Executive will then be asked to recommend the report to Council);

2)     the Treasury Management Strategy including the amendments as set out in Appendix A including the following additional appendices, be approved;

·       Prudential Indicators (Appendix B)

·       Annual Investment Strategy 2021/22 (Appendix C)

·       Minimum Revenue Provision (MRP) policy (Appendix D)

3)     the Committee note the cumulative financial impact on the Council of its borrowing activities equates to a net benefit for the taxpayer per band D of £13.64 at end of 2021/22 and noting the net benefit increase to £62.86 at the end of 2023/24.