Agenda item

·        To present the Treasury Management Strategy Statement 2017/18

·        To present the Treasury Management Mid-Year Review report 2016/17

·        To present a report on Treasury Management Practices

6.1       The Treasury Management Strategy Statement for 2017/18 was presented for the Committee’s consideration. The Statement incorporated the Annual Investment Strategy, the annual Minimum Revenue Provision (MRP) Policy Statement, the annual Treasury Management Policy Statement and the Treasury Management Scheme of Delegation.

The Head of Function (Resources) and Section 151 Officer reported as follows –

•           That the Treasury Management Statement remains fundamentally the same as that adopted for 2016/17. The situation with regard to the economy has not changed essentially with interest rates still at a low level thereby limiting the options in terms of the strategy.

•           The Council’s capital expenditure plans are the key driver of treasury management activity. The overall programmes (as per the table in section 2 of the report) will be limited to what is affordable, both as regards actual capital spend and the revenue implications i.e. the revenue costs that flow from capital financing decisions.

•           Over the last few years, the Council has implemented a policy of avoiding new borrowing by running down spare cash balances. This needs to be carefully reviewed to avoid incurring higher borrowing costs in later times when the Authority will not be able to avoid new borrowing to finance capital expenditure e.g. to fund the Council’s contribution towards the 21st Century Schools programme and/or to refinance maturing debt.

•           The Council is currently maintaining an under-borrowed position. This means that the capital borrowing need (the Capital Financing Requirement) has not been fully funded with loan debt as cash supporting the Council’s reserves, balances and cash flow has been used as a temporary measure. The approach is prudent as investment returns are low and counterparty risk is high, and will continue to be followed where appropriate.

•           Current conditions indicate a need for a flexible approach to the choice between internal and external borrowing. The merits and demerits of both internalisation and externalisation are set out in section 3.3.1 of the report. The Section 151 Officer will monitor the interest rate market and adopt a pragmatic approach to changing circumstances, reporting any decision to the appropriate decision making body at the earliest opportunity.

•           The Council will not borrow more than, or in advance of its needs, solely in order to profit from the investment of the extra sums borrowed.

•           As short term borrowing rates will be considerably cheaper than longer term fixed rates, there may be potential opportunities to generate savings by switching from long term debt to short term debt. All debt rescheduling will be reported to the Audit Committee. However, a recent review of this highlighted that it would cost the Council more to reschedule debt than it would save in interest due to significant early premiums imposed by the PWLB.

•           The Council’s investment strategy and consequently its priorities are based on security first, liquidity second and then return. The Section 151 Officer will maintain a counterparty list in compliance with the criteria set out in Appendix 6 of the report and will revise the criteria and submit them to the Council for approval as necessary. The creditworthiness policy is set out in section 4.2 of the report.

•           Due to the prospect that investment returns are likely to remain low during 2017/18 and beyond, the only proposed amendment to the core principles and policies of the previous year’s TM Strategy is to include Money Market Funds as an additional investment option to the Counterparty Criteria in order to create additional secure options for the Council’s investments.

The Committee considered the report and made the following points –

•           The Committee noted and it supported the Authority’s adoption of a generally conservative approach to treasury management particularly given the range of uncertainties within the economic environment.

•           The Committee noted that the anticipated cost of borrowing for 2016/17 is £6m for both the General Fund (£4m) and the Housing Revenue Account (£2m). The Committee sought clarification whether in the context of so much uncertainties in relation to the prospects for interest rates as documented in section 3.2 of the report, it was wise to be thinking about taking on further borrowing. The Head of Function (Resources) and Section 151 said that the Council will likely have to commit to borrowing to fund its part of the 21st Century Schools Programme. While borrowing is favourable at present because of the low interest rates, the Authority will not borrow simply for the purpose of reinvestment to take advantage of low interest rates because the returns would probably be less than the cost of borrowing. Should the indications be that interest rates are going to rise the Authority will possibly consider borrowing at that point to make the most of the low interest rates. However, the Council’s advisors do not foresee a rise in interest rates in the medium term so the strategy will remain unchanged.

•           The Committee noted that the Council’s external borrowing stood at £110.7m as at 10 November which is considerably higher than its position a few years previously of around £89m. The Committee sought assurance that the Council will be able to repay the debt in the event that interest rates rise. The Head of Function (Resources) and Section 151 Officer said that most of the Authority’s loans at present are on a fixed rate so it knows what the level of repayment is – fixing at a low rate is advantageous and affords the Council some protection against future rate rises; were the interest rates high then consideration would be given to moving to a variable rate. The increase in the Council’s net borrowing is largely due to the HRA buy-out (approximately £21m). As the Council invests in its assets via the capital programme, then the need to borrow will arise because that is how the capital programme is partly funded. The Executive’s strategy for next year is to restrict the capital budget to what is sustainable through supported borrowing i.e. borrowing that is financed through the settlement (apart from the 21st Century Schools project which will require a level of unsupported borrowing). The Officer confirmed that any HRA related borrowing is funded from HRA monies i.e. the rents raised.

•           The Committee sought clarification of the Authority’s borrowing history relative to that of other authorities. The Head of Function (Resources) said that the Authority in Anglesey has been relatively conservative in its approach to borrowing. Additionally, it did not inherit any debt from the authority pre local government re-organisation in 1996.

It was resolved –

•           To note the contents of the covering report.

•           To endorse the Treasury Management Strategy Statement (including the Prudential and Treasury Management Indicators as at Annex A) for 2017/18 and

•           To forward the TM strategy Statement to the Executive without additional comment.

NO FURTHER ACTION ENSUING

6.2       The Treasury Management Mid-Year Review report was presented for the Committee’s consideration. The report provided an economic update for the first part of the 2016/17 financial year; it reviewed the main TM, borrowing and investment strategies at mid-point as well as activity since Quarter 2, and it cast a look at the year ahead.

The Head of Function (Resources) and Section 151 reported that the report shows that the Authority has borrowed slightly less than that profiled in the strategy at the beginning of the year. This can be attributed to some projects not having started, capital grant monies not spent and some slippage on HRA expenditure. The capital expenditure has therefore been less and no additional borrowing has been undertaken, with the Authority instead utilising funds internally; it is not foreseen that any additional borrowing will be undertaken from now until the end of the year. The Authority has to date complied with all the relevant prudential indicators within the 2016/17 TM strategy. The report also provides at Appendix 5 a summary of investment activity so far this year. The Officer confirmed that he was happy with the position as presented.

The Committee noted the information and was satisfied that treasury management activity is delivering in accordance with the strategy at mid-point in the 2016/17 financial year.

It was resolved to accept the report and to forward it to the Executive without additional comment.

NO FURTHER ACTION ENSUING

6.3       The report of the Head of Function (Resources) and Section 151 Officer incorporating the Authority’s Treasury Management Practices was presented for the Committee’s consideration. The report was presented to the Committee to ensure that the Council is implementing best practice in accordance with the Chartered Institute of Public Finance and Accountancy (CIPFA) Code of Practice for Treasury Management which recommends that the Council formally documents its treasury management procedures as Treasury Management Practices (TMPs), and that those are subsequently monitored.

It was resolved –

•           To note the contents of the report.

•           To endorse the Treasury Management Practices as set out in Appendix 1 to the report.

NO FURTHER ACTION ENSUING