Agenda item

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

The report of the Director of Function (Resources)/Section 151 Officer updating the Committee on the Treasury Management 2020/21 mid-year position was presented for the Committee’s consideration.

The Director of Function (Resources)/Section 151 Officer summarised  the main points for the Committee in terms of borrowing and investment activity at the mid-year point  with particular reference to the impact of Covid 19 and confirmed compliance with the treasury and prudential indicators set in the Council’s Treasury Management Strategy Statement 2020/21.

Points noted included the following –

•           That it remains the Council’s priority to ensure security of capital and liquidity and to obtain an appropriate level of return which is consistent with the Council’s risk appetite. Where possible, the Council makes use of its own cash funds to finance capital expenditure and does not borrow more than, or in advance of its needs. However, the ability to externally borrow to repay the reserves and balances if needed is important.

•           The Council held £42.224m of investments as at 30 September, 2020 (£20.208m at 31 March, 2020). Due to large sums of grants received from Welsh Government to help deal with the Covid crisis and the availability of call accounts to the Council, this has resulted in the Council holding balances in call accounts over and above the limits approved within the Annual Investment Strategy included in the TMSS 2020/21.Although this could not be foreseen counterparty limits will be assessed and reviewed when producing the TMSS for 2021/22.

•           Given that security of funds is a key indicator of the Council, other local authorities are seen as the most secure way of investing funds giving greater return than most bank call accounts. The table at paragraph 5.9 of the report shows a list of investments made to other local authorities during the first half of the financial year.

•           Whilst no borrowing was undertaken during the first half of the financial year, it is anticipated that borrowing will be undertaken during the second half of the financial year. There will be a borrowing requirement to fund part of the 2020/21 capital programme and this will be through internal borrowing and external borrowing. The latter is in relation to funding the £4.449m capital costs of new vehicles as part of the conditions of the waste contract awarded to Biffa. The Council has projected year end borrowing of £128.9m and will have used £11.7m of cash flow funds in lieu of borrowing.

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

•           There are some changes to the financing  of the capital programme due to an expected significant underspend in capital schemes in 2020/21 primarily the 21st Century Schools Programme and the Housing Revenue Account. As at 30 September, 2020 £11.471m of capital spend had taken place against the original capital budget of £49.466m with a projected year end position of £33.755m expenditure on the capital budget. Details of how the projected underspend affects the capital funding arrangements are provided in the table at 3.3.2 leading to a revised CFR (Capital Financing requirement) forecast as at paragraph 7.4.3.1 of the report.

In considering the information presented the Committee raised the following points –

•           Whether the forecast £33.755m expenditure on the capital budget at year end is realistic given that only £11.471m of expenditure has been achieved in the first half of the year and mindful also of the Authority’s historical annual underspends on its capital programme. The Director of Function (Resources)/Section 151 Officer advised that the Covid-19 pandemic and related restrictions have had a significant impact on the progress of capital schemes and therefore on capital expenditure during the first quarter of the financial year with the actual capital expenditure of £11m at mid-point being unusually low. The second half of the year will therefore involve an element of catch-up; also a number of the Authority’s capital schemes are in any case weighted towards the latter part of the financial year. Whilst the Authority tends to be overly optimistic in its projections for capital expenditure progress, scheme activities do tend to accelerate towards the end of the year. The weather is a further factor which can impede the progress of schemes. The Housing Revenue Account which represents a significant amount of expenditure is a budget that can be rolled forwards into the following year. The capital programme is subject to regular monitoring and will be next reviewed at the end of Quarter 3. The Authority seeks to ensure that no funding is lost by delays on capital projects.

•           The significant difference between the interest which the Authority pays on its borrowing with specific reference to PWLB rates and the interest which it receives on investments and whether as a consequence it should be looking to review and reduce its external borrowings. The Director of Function (Resources)/Section 151 Officer advised that a number of the Authority’s loans are long-term and are kept under review. Although the PWLB rate has reduced, it is considered that early repayment would not be cost-effective because of the prohibitive penalty charges involved in doing so. It is has also been the Authority’s strategy for some years to use the cash it holds for capital expenditure thereby avoiding interests payments.

•           In view of the extent of the Authority’s cash balances, whether it is able to provide support to the Island’s business/employment sectors. The Director of Function(Resources)/Section 151 Officer advised that the cash which the Authority holds is not necessarily available to spend and that much of it is earmarked for specific purposes including meeting the revenue cost of the capital programme. The Authority’s reserves are also held to provide a safety net in the event of an unforeseen crisis the pandemic being a case in point.  Whilst the economy comes within the range of local authority statutory duties, supporting and promoting the economy is a function of Welsh and Westminster Governments.  It is a matter for the Full Council to decide whether as part of its annual budget setting, it wishes to increase the revenue budget to help meet the needs of the local economy at this time. The Council’s Constitution sets parameters with regard to what officers and the Executive are authorised to do in terms of committing revenue expenditure.

It was resolved to accept the TM mid-year review report for 2020/21 without further comment.

NO PROPOSAL FOR ADDITIONAL ACTION WAS MADE