Agenda item

To present the Annual Treasury Management Review for 2014/15.

The report of the Interim Head of Resources and Section 151 Officer incorporating the Annual Treasury Management review for 2014/15 was presented for the Committee’s consideration and scrutiny. The report set out the out-turn position for treasury activities during the year and highlighted compliance with Council’s policies as previously approved by Members.

The Senior Accountant (Strategic Planning and Transformation) reported that capital expenditure during the year was financed through a number of sources; in light of the current and projected market interest rates and counterparty credit risks (the credit ratings of which were given in Appendix 2) it was decided to continue internalising borrowing in the short term to reduce both those risks and costs. This strategy has now been implemented throughout each of the last four years, and as a result of continuing with this approach, the gap between the Council’s underlying borrowing need (CFR) and external borrowing decreased during 2014/15 to £19m.The Officer said that a reducing CFR against external borrowing has been a theme of recent years and he confirmed that the Council has complied with all the treasury limits and prudential indicators and is operating in line with the approved Treasury Management Strategy. It was previously reported that the Authority was preparing to exit the HRA subsidy system on 2 April, 2015, and at the time of reporting for Quarter 3 it was known that the buyout was to be financed through the PWLB and that the settlement amount and rate of interest on the borrowing were to be confirmed. The buyout has since been completed and the HRA is now self-financed.

The Committee considered the report and made the following points –

•           The Committee sought clarification whether in view of the prevailing climate of cheap borrowing the Council should be looking to maximise borrowing opportunities. The Senior Accountant (Strategic Planning and Transformation) said that should the Authority externalise its full borrowing it would mean placing that cash with counterparties at the banks which renders the Council open to risk due to the potential for default on their part. Additionally, in the short term using its own cash allows the Authority to reduce borrowing costs. The approach is to eschew short-term gains which might be to the detriment of the Authority in the long term. It is important to assess the forecast movement on the markets and the conditions for investing on an ongoing basis to ensure they are suitable. The Officer confirmed that the situation is kept under regular review.

•           The Committee sought to establish whether in light of historically low interest rates, it would have been more advantageous to the Authority to have adopted a strategy of using its borrowing capacity to make planned investment in its property portfolio (the small holdings portfolio was cited as an example) which it was suggested has been allowed to suffer decline to the extent that remedial works are required at potentially greater cost. The Interim Head of Resources and Section 151 Officer whilst acknowledging the point made said that it has to be borne in mind that borrowing brings with it additional revenue costs. If it could be shown that there was a clear difference between the amount paid on loans and the returns obtained by investment over the course of a period of years then it might have been in the Authority’s interests to have taken such an approach but that is a deduction that can only be made with the benefit of hindsight. There are however options that could have been considered.

It was resolved –

•           To note that the figures contained within the review report will remain provisional until the audit of the 2014/15 Statement of Accounts is completed and signed off and that any resulting significant adjustments to the figures included within the report will be reported as appropriate.

•           To note the provisional actual 2014/15 prudential and treasury indicators within the report.

•           To note and accept the Treasury Management Review report for 2014/15 as presented and to forward it to the Executive without additional comment.