Agenda item

The report of the Director of Function (Resources)/Section 15 Officer incorporating the Treasury Management Review for 2019/20 was presented for the Committee’s consideration. The review provided a synopsis of the Council’s treasury activities during the 2019/20 financial year including its approach to borrowing and investment.

The Director of Function (Resources)/Section 151 Officer highlighted the following -

•           The external context and the wider factors that have influenced treasury management decisions including the state of the UK economy; interest rate performance during the year; the continued uncertainty over Brexit – especially a no-deal Brexit - and the impact of Covid-19.

•           The internal factors including :

•           The performance of capital expenditure – the table at 3.1 shows the actual capital expenditure and how this was financed. Actual General Fund capital expenditure financed by borrowing was £2m against a projected £7m at the start of the year. The main reason for the underspend was the large underspend on the projects as listed and in particular the £4.547m underspend on 21st Century Schools programme  which has been delayed by further consultation on the schemes in the Llangefni area.

•           Reserves and cash balances – the Council’s cash balances comprise revenue and capital resources and cash flow monies. The Council’s core cash resources are set out in the table at 3.2 of the report and include the Council Fund General Reserve which increased from £5.912m as at 31 March, 2019 to £7.060m as at 31 March, 2020. The Council’s total usable reserves and provisions stood at £31.124m at 31 March, 2020 (compared to £30.078m at 31 March, 2019).

•           Borrowing taken out by the Council – in March, 2020 the Council took out one short-term borrowing with the PWLB to fund planned capital expenditure to the end of the financial year. On 18 March, 2020 the Council made a borrowing of £10m (unplanned at the start of the year) with an interest rate of 2.05% to ensure it had sufficient cash in the bank going into the Covid 19 crisis in light of the uncertainty surrounding that period.

•           Gross borrowing and the Capital Financing Requirement (CFR) – the gross borrowing of £139.2m as at 31 March, 2020 is above the CFR as at 31 March, 2019 but is within the forecast CFR for the following two years (table 3.3.1 refers). The year end-position has exceeded the CFR because of the £10m borrowing taken out in March, 2020; also the global pandemic has meant that capital expenditure in the final month of the year was less than anticipated resulting in external borrowing exceeding the CFR. This is for the short-term as the level of external borrowing will fall below the CFR in 2020/21 as external borrowing is repaid and capital expenditure incurred.

•           Internal borrowing – at the beginning of the year, the internal borrowing position whereby the Council uses its own cash reserves to fund capital expenditure was £6.2m. By taking out the new £10m PWLB loan, the internal borrowing position as at 31 March, 2020 was reduced thereby putting the Council in an overfunding of CFR position meaning it held £2.3m of unused capital borrowing.

•           Other borrowings – the Council did not enter into any other short-term borrowings. An interest free Welsh Government loan of £1.878m was received during 2019/20 to fund capital expenditure on energy saving projects and will be repaid in annual instalments.

•           Debt repayments – a PWLB loan for £5m matured during the year on 20 May, 2019.

•           Investments – investment activity during the year conformed to the approved strategy which puts the security of capital first followed by liquidity and then yield. Most of the Council’s deposits were held in no notice deposit accounts whilst there were two loans to other local authorities. The strategy on investing surplus cash would be to borrow short term with other local authorities as a secure way to maximise returns.

•           Treasury Management Prudential Indicators – an analysis of the difference between the actual and the forecast Prudential Indicators for 2019/20 as approved in the Treasury Management Strategy Statement for 2019/20 is provided in section 6 of the report. The key data for actual prudential and treasury indicators detailing the impact of capital expenditure activities during the year is contained within the table at 6.1 of the report. During 2019/20 the Council complied with its legislative and regulatory requirements.

•           The Council’s treasury management performance during the year was in line with the strategy of low risk, low return on investments and a planned approach to borrowing to minimise interest charges. Performance against the strategy takes into account the external economic factors and is kept under regular review to ensure the strategy remains the most appropriate.

•           Moving forward into 2020/21 there is a great deal of uncertainty regarding how the financial impact of the Covid-19 pandemic will unfold over time. The Council has sought to keep its cash balances at a reasonably high level of between £45m and £55m during the crisis; it has received RSG funding in advance and has continued to collect Council Tax from those who can pay meaning that its cash flow is in a healthy position. Consideration will now be given to what return can be obtained from investing any surplus cash while ensuring the security of the capital invested.

In response to points raised by the Committee, the Director of Function (Resources)/Section 151 Officer further clarified –

•           That with regard to the importance of investing in business to give people encouragement and to signal that a corner has been turned in relation to the pandemic, as the country moves forward into the recovery period, organisations including local government will have a critical role in delivering the Government’s aspirations and spending plans for infrastructure projects to boost the economy post lockdown. It is also likely that additional grants and capital expenditure will be made available over the course of the next few years.

•           That with regard to the appropriateness  of the PWLB being the Council’s primary source of funding given that its average rate is 4.5% compared to the average  Bank Rate at 0.1%, the average rate is based on all the Council’s loans which are outstanding over a number of years dating back to a period when interest rates were considerably higher.  The current rate for PWLB loans is around 2.2% and was raised by 1% late last year. The Council has not undertaken any borrowing apart from the £10m with PWLB in March which was on a short-term basis to March, 2021. Should the Council wish to take out any long-term borrowing then it would consult with its Treasury Advisors to establish whether PWLB is the best option in those circumstances.

•           That as regards the Council being in a more advantageous position because it is not  dependent on commercial income for its financial health, the Council’s opportunities for commercial investment are fewer than those for urban councils. However, councils that have invested heavily in commercial premises such as theatres, retail development and airports and rely on them for income are now likely to be facing greater hardship because the income from those sources has diminished significantly as they have ceased to operate over the lockdown period. Although Anglesey has experienced a loss of income because of the crisis, it is to a lesser extent than that of the larger councils in Wales and will be covered in part by its share of the £78m which Welsh Government has set aside to compensate councils for loss of income.

•           With regard to the collection of Council Tax, the rate of collection was 1.5% lower in May, 2020 compared to that for May, 2019 which is due to taxpayers being allowed to defer payment of the first instalment of Council Tax from May to June this year and to the Council not having instigated any recovery action to date. Added to this is the increased costs of the Council Tax Reduction Scheme as the number of claimants rises. The true effect of the pandemic on Council Tax revenue is not likely to be felt until such point at which consideration is given to debt write-offs.

It was resolved –

•           To note that the outturn figures in the report will remain provisional until the audit of the 2019/20 Statement of Accounts is completed and signed off; any resulting significant adjustments to the figures included in the report will be reported as appropriate.

•           To note the provisional 2019/20 prudential and treasury indicators in the report.

•           To accept the Treasury Management Annual Review report for 2019/20, and to recommend it to the Executive without comment.