Agenda item

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

The Head of Function (Resources)/Section 151 Officer reported that as there has been no significant change in the economic position and since the outlook remains uncertain, the Council’s Treasury Management approach will continue to be based on the following –

•           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 since the returns on the investment are likely to be lower than the cost of borrowing.

•           The Council will maintain a flexible approach to internal and external borrowing having regard for the factors described in section 3.3.1 of the strategy. The Council is at present maintaining an under borrowed position meaning 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 instead. This approach is prudent because investment returns are low and counterparty risk is still an issue that needs to be considered. The Capital Financing Requirement (the forecast underlying need to borrow to finance the capital programme) at year end will be £138.1m resulting in the Council being internally borrowed (using Council reserves and balances to help fund the capital programme) by £20.1m by year end.

•           Consideration will be given to debt re-scheduling as well as to the potential for making savings by running down investments to repay debt prematurely. Additionally, where possible, the Council will avoid new borrowing to replace maturing external debt and will instead use cash balances.

•           The Council’s investment priorities will remain security first, liquidity second and then return. The Council will make investments with counterparties in accordance with the creditworthiness policy set out in section 4.2 of the strategy.

•           In terms of updates to the Treasury Management Strategy Statement, the only proposed amendment to the core principles and policies of the 2017/18 Statement is to amend the Minimum Reserve Provision (MRP) Policy so that the MRP charge going forward is consistent for both supported borrowing and unsupported borrowing and is based on the useful economic life of the asset.

•           There is also one proposed change to the Authority’s Treasury Management Practices which is to increase the minimum cash balance from £6m to £6.5m.

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

•           The Committee noted the variance between borrowing rates and investment rates. The Committee sought clarification of whether the Council is able to offset the amount it borrows against the amount it has invested in order to reduce the capital borrowed. The Head of Function (Resources) /Section151 Officer said that the majority of the   loans taken out by the Council are fixed amounts over a fixed period with a fixed interest rate which enables it to plan over the long term and provides security against  volatility. At present due to the low interest rates, the preference is to tie into the low rates for the benefit of the Council.

•           The Committee sought clarification of the point at which it is considered viable for the Council to increase borrowing. The Head of Function (Resources) /Section151 Officer said that it depends on the difference between the amount borrowed and the return on investment. Other factors taken into consideration include the amount of cash balances the Council holds at any given time which influences the timing of borrowing. Whilst the Council has to ensure that it has enough cash available to meet requirements it does not want to hold too much surplus cash with nowhere to invest it.  

•           The Committee sought clarification of whether the Council has regard for the Discounted Cash Flow factor when undertaking projects i.e. the idea that a sum of money to be paid in future is worth less today than were the same sum to be paid today. The Head of Function (Resources) /Section151 Officer said that that calculation would be made for any projects that are funded by unsupported borrowing. The Council also has to consider the MRP calculation because the MRP charge has an impact on the revenue budget.

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) [Annex A] for 2018/19.

•           To forward the TM Strategy Statement 2018/19 to the Executive without further comment.

•           To approve the change in TMPs, increasing the minimum cash balance from £6m to £6.6m to reflect the increase in the minimum general reserve balance.

NO ADDITIONAL ACTION WAS PROPOSED