Agenda item

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

The report of the Head of Function (Resources)/Section 151 Officer incorporating a review of the Treasury Management position and activity mid-way through the 2018/19 financial year in accordance with the requirements of CIPFA’s Code of Practice on Treasury Management was presented for the Committee’s consideration.

The Head of Function (Resources)/Section 151 Officer highlighted the main points as follows –

•           The Council held £6.089m of investments as at 30 September, 2018 and the investment portfolio yield for the first 6 months of the year was 0.65%. A full list of investments as at 30 September, 2018 is provided in Appendix 3 to the report.

•           The approved limits within the Annual Investment Strategy was not breached during the first 6 months of 2018/19.

•           The Council’s budgeted investment return for the whole of 2018/19 is £0.017m; performance for the year to date exceeds the budget with £0.023m received to the end of Quarter 2. This is due to the increase in bank rate from 0.5% to 0.75% in August, 2018.

•           No borrowing was undertaken during the first half of this financial year. However, it is anticipated that borrowing will need to be undertaken during the second half of the financial year.

•           During the first half of the financial year, a short term borrowing of £5m from the Tyne and Wear Pension Fund taken out in January 2018 at an interest rate of 0.5% matured and was repaid in April, 2018.

•           Debt rescheduling opportunities have been very limited in the current economic climate as detailed in paragraph 6.4 of the report. No debt rescheduling has taken place to date in the current financial year.

•           Since Quarter 2 ended, the Authority has arranged to borrow £5m from North Yorkshire County Council. The borrowing will take place from 16 October, 2018 to 16 January, 2019 at a rate of 0.85%.This decision is in keeping with the current borrowing strategy of only borrowing longer term when the funding is required and not to borrow simply to take advantage of low borrowing rates as the cost of carry is too high.

•           Section 7 of the report describes the Council’s capital position and performance in relation to the key Prudential Indicators including that for capital expenditure (Table 7.2 of the report).

•           Table 7.4.3 of the report shows the Capital Financing Requirement which is the underlying external need to borrow to pay for capital expenditure. The Authority is currently slightly below the original forecast CFR because of the forecast underspend in borrowing mainly down to the 21st Century Schools’ Programme and the revised funding method for the Seiriol Extra Care facility.

•           The Authority is also keeping within the Operational Boundary which shows the expected debt position over the period. The 2018/19 opening borrowing position was £117.778m with the end of year position estimated at £125.623m which is well within the £172m operational boundary set out in the Treasury Management Strategy.

•           Section 7.5 of the report sets out the Authority’s position in relation to gross borrowing and the Capital Financing Requirement. In order to ensure that over the medium term, net borrowing will only be for a capital purpose, the Authority should ensure that gross external borrowing should not except in the short term, exceed the total CFR in the preceding year plus the estimates of any additional CFR for 2018/19 and the next two financial years. It is not envisaged that there will be any difficulties in complying with this prudential indicator in the current year as Table 7.5.1 demonstrates.

•           A further prudential indicator controls the overall level of borrowing which is the authorised limit beyond which borrowing is prohibited. This is currently set at £177m and reflects the level of borrowing which while not desirable could be afforded in the short-term but is not sustainable in the long-term. The Council’s current borrowing position as at 30 September, 2018 is £112,588m.

In considering the report the Committee made the following points –

•           The Committee noted that the capital programme is again expected to be underspent at year end; it sought clarification of whether a more sceptical approach to the capital budget needs to be adopted.

The Head of Function (Resources)/Section 151 Officer said that there a number of projects in the Capital programme some of which are large scale and are outside the Authority’s control e.g. improvements to the A5025 to Wylfa, Gypsy and Travellers’ Sites, Holyhead Strategic Infrastructure which have be delayed due to various reasons including having to wait for approval from funding providers and delayed planning consent. However, there is nothing arising from the capital underspend that will lead to the loss of external funding and it is not a cause for undue concern. Where a level of expenditure has to be incurred in order to be able to draw down a grant, then the Authority ensures that the required expenditure occurs.

•           The Committee noted that the Authority has been using cash reserves to fund part of its capital expenditure in order to reduce its borrowing the rationale being that the cost of borrowing is higher than the returns were the cash to be put on deposit. The Committee sought clarification of how much longer can the Council sustain this policy.

The Head of Function(Resources)/Section 151 Officers said that the cash the Council has matches its cash backed reserves i.e. the General Fund, Earmarked Reserves, School balances and the HRA balance. As the Council’s financial position worsens it has been drawing on its reserves with the result that the level of reserves which the Council holds has reduced meaning there is less cash in the business. The point is approaching therefore when the Council will have to look to external borrowing instead of using its cash balances otherwise those will be depleted. This does not mean that the Council is in any financial difficulty but rather that it has to replenish its cash balances with external borrowing. This has already been done with smaller scale borrowing over a short-term; however the time has come to bolster the Council’s cash balances by external borrowing which will likely take on the form of a £10m or £15m loan over a 5 to 10 year repayment period.

•           The Committee noted that an element of the Council’s part of the funding of the 21st Century Schools’ Programme are the capital receipts from the sale of redundant school buildings. The Committee also noted that the marketing and sale of those assets are not always timely when realising their value could help the Council reduce its borrowing requirements and the costs of borrowing that then fall to the Revenue budget.

The Head of Function (Resources)/Section 151 Officer said that the disposal of assets is a matter of timing in order to maximise the price obtained but that this sometimes involves holding on to an asset for a period of time until the market improves especially if the sale involves more than one of the same type of asset in a particular area e.g. schools where a staggered sale might bring in more income.

It was resolved to accept and to note the mid-year review report on Treasury Management without any additional comments.

NO ADDITONAL ACTION WAS PROPOSED