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 incorporating the Treasury Management Strategy Statement for 2021/22 was presented for the Committee’s consideration. The Statement sets out the Council’s strategy for the forthcoming financial year with regard to borrowing and investment and the constraints on borrowing, determines the prudential indicators and the Council’s risk appetite and also its approach to investments.  

The Director of Function (Resources)/Section 151 Officer in highlighting  the main points form the report as follows, confirmed that there are no proposed amendments to the core principles of the 2020/21 Statement –

•           The external context in the form of the wider economic situation as that impacts on investment interest rates, the cost of borrowing and the financial strength of counterparties. A full summary of the economic outlook was set out in Appendix 3 to the report and a distillation of the man points provided in section 3. Having considered the available information and having taken advice form the Council’s Treasury Management Advisors, the table at paragraph 3.2 of the report set out the Council’s view on interest rate levels to March, 2024 which are not expected to change significantly in that period.

•           The Council’s current external borrowing position as set out in the table at paragraph 4.1.1 of the report which shows that it has approximately £122m of loans with PWLB and £2.6m of loans with Salix a publicly funded scheme that provides interest free loans for energy efficiency improvements.

•           The proposed capital expenditure programme for 2021/22 to 2023/24 as set out in section 5.6 of the report including proposed capital spend, how this is to be financed and the balance to be funded from borrowing - £7.553m for the Schools Modernisation Programme

•           The impact of the Council’s capital expenditure plans and the Minimum Revenue Provision (MRP) charge on the Capital Financing Requirement (CFR) and the level of external and internal borrowing as shown in Table 4 of the report.

•           The Minimum Revenue Provision – the charge which the Council is required to make to the revenue account each year to ensure that there are sufficient funds available to repay debt as it fall due. The MRP Policy is detailed in Appendix 6 to the report and has not changed since it was substantially revised in 2018.

•           The Council is currently maintaining an under borrowed position. This approach is prudent as investment returns are low and counterparty risk is still an issue that needs to be considered. As part of its strategy, the ability to externally borrow to repay the reserves and balances if needed is important. Table 4 indicates that £8.884m may need to be externally borrowed if urgently required which is the amount of Council reserves and balances used in the past to fund the capital programme instead of taking out borrowing.

•           The Council will not borrow more than or in advance of its needs solely to profit from the investment of the extra sums borrowed. In determining whether borrowing will be undertaken in advance of need, the Council will have regard to the factors set out in paragraph 6.4.2 of the report.

•           Rescheduling of current borrowing in the Council’s debt portfolio is unlikely to occur due to the very large differences between premature redemption rates and the new borrowing making it uneconomical to do so.

•           The overriding strategy for the management of funds is ensuring first of all the security of the deposit, secondly the liquidity and thirdly the return on investment.

•           The guidance from Welsh Government and CIPFA place a high priority on the management of risk. The Council has adopted a prudent approach to managing risk and defines its risk appetite by the means set out in section 7.2. of the report in terms of creditworthy counterparties, lending limits and credit ratings which are monitored daily.

•           Section 8 of the report set out the governance and control arrangement with regard to treasury management processes, decisions and performance.

•           Appendix 11 to the report contains the Prudential and Treasury Indicators which cover affordability and prudence and set out the limits for capital expenditure, external debt and the structure of the debt.

In considering the information presented the Committee discussed the Council’s capital expenditure plans specifically whether the Council would achieve its planned capital expenditure for 2020/21 when only £11m was shown to have been spent against a reported figure of £33.7m when the Committee last met in December and whether in light of historic underspends on the capital budget the Council is being realistic in its forward plans for capital expenditure.

The Director of Function (Resources)/Section 151 Officer in referring to the Quarter 3 capital budget monitoring report that would  be presented to the Executive on 1 March, 2021 clarified that the projected spend from a total budget of £56m is £34m. Of the £22m underspend, £8m relates to the HRA none of which involves borrowing as the expenditure is funded from HRA reserves; £7.7m relates to the Schools’ Modernisation Programme funded by a combination of grants, and supported and unsupported borrowing; £1m relates to economic development made up of European grant funding which is secure and £2m relates to flood alleviation scheme works funded by 85% Welsh Government grants and 15% Council resources. Table 4 of the Treasury Management Strategy Statement report will be updated to reflect the current position ahead of its submission to the Executive. With regard to realising capital expenditure, a range of issues can lead to delay in the progress of capital projects against the approved profile and spend and the Council may be over optimistic about the prospects of its capital programme as regards time, delivery and external factors beyond its control. However, as the capital programme is approved ahead of the year in which the expenditure will take place the view can be taken that it is better to enter schemes for inclusion in the programme at the start of the year on the basis that they will be delivered than to have to go back to seek approval for schemes mid-year because of unutilised capital and capacity.

In response to further questions, the Director of Function (Resources)/Section 151 Officer confirmed that the Council does have regard to inflation rates based on advice provided by its Treasury Management Advisors (Appendix 3 refers) but that inflation is a more prominent factor on the revenue side rather than the capital side. The Officer also clarified that the impact on forecast borrowing of being over optimistic about the delivery of the capital programme is not so great as in practice on a day to day basis the Council uses the cash it holds to fund capital expenditure to  avoid borrowing and the interest

costs that go with it until such time as it then has borrow externally to replace the cash it has spent. The Officer also provided assurance that in using cash reserves to fund capital expenditure, cash flow management safeguards will not allow cash flow to reduce below a certain level and the Section 151 Officer will take steps to ensure that the Council holds a minimum balance of £10m in accessible deposit accounts at any given time.

It was resolved -

•           To accept the Treasury Management Strategy for 2021/22 and to forward the strategy to the Executive for approval subject to Table 4 being updated to reflect the current position.

•           To note the increase in transaction limits in Appendix 8 to the report.

NO PROPOSAL FOR ADDITIONAL ACTION WAS MADE