Agenda item

To present the report of the Head of Function (Resources) and Section 151 Officer.

The report of the Head of Function (Resources) and Section 151 Officer incorporating a review of the Treasury Management position at mid-year 2017/18 was presented for the Committee’s consideration.

The Head of Function (Resources) and Section 151 Officer reported on the main points as follows:

•           That the Treasury Management Strategy Statement (TMSS) for 2017/18 was approved by the Council on 28 February, 2017. There are no policy changes to the TMSS; the details provided in the mid- year review report updates the position in the light of the updated economic position and budget changes already approved.

•           The table at 5.2 of the report shows the revised estimates for capital expenditure in comparison to the capital budget. The current estimate for capital expenditure is behind the original estimate mainly due to the New Highways to Wylfa being delayed until the next financial year and the Holyhead Strategic Infrastructure still awaiting WEFO funding. However, there are no significant changes to the financing of the capital programme to report at this stage.

•           The table at 5.4.2.1 of the report shows the Capital Financing Requirement (CFR) which is the underlying need to borrow externally to fund capital expenditure. The Council is currently slightly below the original forecast CFR due to the forecast underspend in the 21st Century schools programme meaning less borrowing will be undertaken in 2017/18. The table also shows the expected debt position (or operational boundary) over the period. The Council is at present £47m approximately within the boundary.

•           Section 6 of the report outlines the position with regard to the Council’s investment portfolio for 2017/218. A full list of investments as at 30 September, 2017 is provided in Appendix A to the report. The approved limits within the Annual Investment Strategy were not breached during the first six months of 2017/18.

•           The projected CFR for 2017/18 is £138.1m.The Council has projected year end borrowing of £118m and will have used £20.1m of cash flow funds in lieu of borrowing. This is a prudent and cost effective approach in the current economic climate but will require ongoing monitoring in the event that upside risk to gilt yields prevails. Whilst no borrowing was undertaken during the first half of the financial year, it is anticipated that borrowing will need to be undertaken during the second half of the year. Paragraph 7.3 gives details of two separate long term loans with the PWLB that matured during the first six months of the financial year.

•           No debt rescheduling has been undertaken to date in the current financial year.

•           Paragraph 9 of the report outlines activity since the end of Quarter 2, principally the arrangements made with regard to borrowing £5m from Tyne and Wear Pension Fund South Shields.

•           Section 11 of the report provides an update on TM related matters in relation to revised CIPFA codes and regulations under MIFID ll  - these govern the relationship that financial institutions conducting lending and borrowing transactions will have with local authorities as from 3 January, 2018 and the options available to the Council in terms of opting up to professional status or retaining retail client status.

The Committee considered the information presented and commented as follows –

•           The Committee noted the interest rate forecast provided by the Council’s treasury advisors as at paragraph 3.1 of the report. The Committee sought clarification as to the reliability of the forecast and consequently how much reliance the Council should be placing on it for treasury management planning purposes given that it assumes the bank rate will be 0.25% in March, 2019 when it has already risen to 0.50% in November, 2017. The Head of Function (Resources) and Section 151 Officer said that the forecast will influence the timing of the Authority’s borrowing (although PWLB loans tend to be fixed rate) and is meant to be indicative of trends and as such, is more relevant to the loans which the Authority has over the long-term. The Council’s treasury advisors are not predicting a significant rise in interest rates over time and their projections will be taken into account by the Authority in deciding the most opportune time to commit to a loan. However, it is not the Authority’s policy to borrow on the basis of the rate because unless it is for a specific purpose, a loan will cost more for the Authority to carry than it can hope to make up by way of investment return.

•           The Committee sought clarification of the variance with regard to the original and revised estimates for capital grants. The Head of Function (Resources) and Section 151 Officer said that the variance is due mainly to the delay in the new highways to Wylfa; whilst the original plan provided for the work to be undertaken prior to the submission of the Development Consent Order (DCO) for the new nuclear build, the revised plan sees the highways element become part and parcel of the DCO meaning that little actual work on the new road to Wylfa will take place before permission for the new nuclear power station is granted. The Council as Highways Authority will be undertaking the work which is being funded by Horizon; this is being treated as a capital grant and although the new highways programme has slipped into 2018/19 the funding for it will still be available at that time.

•           The Committee sought clarification of the funding position with regard to the 21st Century Schools programme given that the report refers to a forecast underspend on the programme with the result that less borrowing will be undertaken in 2017/18. The Head of Function (Resources) and Section 151 Officer said that funding for the 21st Century Schools Programme is shared between the Authority and the Welsh Government; the Authority’s share is made up of borrowing whilst one third of the  Welsh Government’s share is made up of a grant and two thirds is made up of supported borrowing i.e. the Authority does the borrowing whilst Welsh Government provides additional funding as part of the annual settlement to cover the cost of the Minimum Revenue Provision (MRP) and interest. The Authority can use capital receipts from the sale of redundant school assets as part of its share of the funding meaning it only has to borrow the balance through unsupported borrowing i.e. borrowing whereby the Authority has to fund the cost of the MRP and interest from its own budget. If the Authority is able to make savings by way of realising the sale of schools that have closed, then those can reduce its borrowing commitment and the associated revenue costs that come with borrowing.

•           The Committee noted that the capital expenditure rate has to accelerate in order to progress from the September, 2017 position to the current estimate. The Committee sought clarification of whether this is realistic. The Head of Function (Resources) and Section 151 Officer said that while capital schemes usually take some time to get started, the Finance Service will hold discussions with project managers regarding the progress of expenditure leading to a joint Finance and Service projection of spend. Historically, capital expenditure has been weighted towards the second half of the financial year; this might be because Services are not able to commence expenditure until late February when the capital budget is approved – until then they have no authority to do so. The Finance Service will seek to ensure that no grant funding is lost due to slippage on capital schemes particularly in relation to the 21st Century Schools programme which is the Authority’s largest grant where a specific level of expenditure is required. Should adverse weather conditions delay or prevent work being undertaken on the latest phase of the programme so that the required level of spending has not happened then the Authority will consult with the Welsh Government on ways to maximise the grant.

It was resolved to accept the TM mid-year review report 2017/18 with the recommendation to the Executive that with regard to financing the Council’s part of the Twenty-first century schools programme expenditure, a proactive approach is taken to ensure the timely sale of assets so as to reduce the Council’s need to borrow along with the associated revenue costs arising from the borrowing.

NO ADDITIONAL ACTION WAS PROPOSED