Agenda item

To receive a report by the Head of Function (Resources)/Section 151 Officer.

The Annual Treasury Management Review of Activities Report for 2016/17 was presented for the Committee’s consideration and scrutiny in line with regulations under the Local Government Act 2003 and the Council’s Treasury Management Scheme of Delegation for 2016/17.

The Head of Function (Resources) and Section 151 Officer reported that treasury management involves managing the Council’s cash flow and balances and making decisions about investment   and borrowing in a way that supports the Council’s corporate objectives.  Treasury management activity is undertaken in accordance with the Treasury Management Strategy which is approved by Full Council before the commencement of the financial year and which is then reviewed both mid-year and at year end. The report sets out in detail the activities and outcomes in the 2016/17 financial year in relation to the following areas –

•           Capital Activity

•           Impact of capital activity on the Council’s underlying indebtedness (the Capital Financing Requirement).

•           The actual prudential and treasury indicators which define the parameters for treasury management activity during the year against which performance is assessed. These are agreed by Full Council at the beginning of the financial year

•           Overall treasury position identifying how the Council has borrowed in relation to this indebtedness and the impact on investment balances

•           Interest rate movements in the year

•           Debt activity, and

•           Investment activity

In general the year was fairly stable with the most significant activity being a loan from PWLB amounting to £6.2m for the 21st Century Schools project. Investment returns reduced to an all-time low due to the cut in the base rate down to 0.25%. The Council held appropriate cash balances at all times although the low interest rate meant that returns were low. However, this was consistent with the Treasury Management Strategy for 2016/17 where the key objectives were low risk and ensuring there was sufficient cash to pay the Council’s creditors. The key messages were that the Council continued to prioritise security over return in its investment approach and that borrowing was only taken out for capital purposes and that the statutory borrowing limit (the authorised limit)  was not breached. The Council continued to implement the internal borrowing strategy as has been the case for each of the last six years. There was no debt rescheduling during the year as the average 1% differential between the Public Works Loan Board’s new borrowing rates and premature repayment rates made rescheduling unviable. The Council complied with all its legislative and regulatory requirements in 2016/217 and the year continued the challenging investment environment of previous years, namely low investment returns.

The Committee considered the information presented and it made the following points –

•           The Committee inquired in light of the poor returns on investment and the likelihood that this trend will continue for the foreseeable future, whether it was feasible for the North Wales authorities to be considering pooling their resources for joint investment purposes in order to try to secure more advantageous returns. The Head of Function (Resources) and Section 151 said that the Councils’ day to day requirements vary making it difficult to arrive at an investment approach that would satisfy each Council’s needs whilst ensuring that any returns are apportioned equitably. The six North Wales authorities can and do approach each other with their borrowing needs but in a climate where local authorities are holding significant cash reserves the immediate concern is how councils can invest in a way that makes money but at minimum risk.

•           The Committee noted that the financing costs as a proportion of net revenue stream in relation to the HRA has increased from 14.6% in 2014/15 to 18.56% in 2016/17 (whilst reducing in 2015/16) and it sought clarification of the increase. The Head of Function (Resources) and Section 151 Officer said that there has been an increase in capital expenditure under the HRA in 2016/17 so the financing costs have increased.

•           The Committee noted that the balance on deposit as at 31 March, 2016 was in the region of £13.3m  whereas it had increased to £15.6m at 31 March, 2017.The Committee sought an explanation for the increase and whether the figure has historically varied by such an amount. The Head of Function (Resources) and Section 151 Officer said that the money which the Council has on deposit can vary enormously within the course of a day because as an organisation it deals with large cash transactions every day and receives funds from a variety of sources e.g. the Revenue Support Grant comes to the Council in monthly instalments of about £7m to £8m; Council Tax and Business rates payments are received as are direct debit payments. On the other hand salary payments and contractor payments go out, so there are large cash flow movements in and out which are not reflective of the Council’s overall financial health only the position on a given day.

•           The Committee sought clarification of why the budget for capital expenditure compared with actual expenditure varies widely, and whether such a variance is due to underestimation or overestimation of the budget. The Head of Function (Resources) and Section 151 Officer said that there are a number of large schemes within the capital programme some of which are funded externally e.g. highway improvements to the A5025 funded wholly by Horizon. Whilst the funding for the schemes is included in the budget, work on them may slip for a number of reasons so less expenditure is actually incurred. The capital budget is set based on the information available at the time but other factors especially in relation to capital works can cause a scheme to slip. The funding for schemes supported by grants or external funding streams is not lost but rather slips into the following year.

•           The Committee sought clarification of whether it is Council policy not to borrow for longer than the life of an asset.  The Head of Function (Resources) and Section 151 Officer said that borrowing for a longer period is possible; the Council has to make an annual charge to the revenue account to repay the borrowing need. The policy currently is to recharge at 4% for older loans on a reducing balance but that the approach going forwards is to borrow over the estimated life of the asset.

It was resolved –

•           To note that the outturn figures within the report will remain provisional until the audit of the 2016/17 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 2016/17 prudential and treasure indicators within the report.

•           To accept the annual Treasury Management Review report for 2016/17 and to forward it to the next meeting of the Executive without further comment.

NO FURTHER ACTION ENSUING