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 2022/23 was presented for the Committee’s consideration. The report outlined the Treasury Management Strategy for 2022/23 including the Annual Investment Strategy, the Annual Minimum Revenue Provision Policy Statement, the Treasury Management Policy Statement, the capital plans and associated Prudential Indicators.

The Treasury Management Strategy sits below the Capital Strategy and considers the impact of that strategy on the Council’s borrowing and investment. It sets out how both strategies will be undertaken in a controlled way which is in line with a suitable level of risk that the Council wishes to take having regard to the guidance set out in the CIPFA Code of Practice on Treasury Management. The Treasury Management Strategy outlines the Council’s approach to borrowing and investment which follows on from the Capital Strategy, sets out the constraints on borrowing, determines a set of prudential indicators that ensure the affordability of the Council’s capital plans and determines the Council’s risk appetite and approach to managing its investments. These elements cover the legislative and regulatory requirements.

The Strategy for 2022/23 covers two main areas – capital issues and treasury management issues and considers the key factors in relation to each area and how those shape the Treasury Management strategy and approach.

The Director of Function (Resources)/Section 151 Officer in presenting the report confirmed that there are no proposed amendments to the core principles of the 2021/22 Statement and highlighted the following –

·         The economic background commentary (Appendix 3 to the report) and interest rate forecast to March 2025 and implications for the Treasury Management Strategy.

·         The proposed capital expenditure programme for 2022/23 to 2024/25 as set out in table 3 of the report including proposed capital spend, how this is to be financed and the balance to be funded from borrowing over each of the three years.

·         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 showing a projected increase in external borrowing over the next three years but remaining within the acceptable parameters.

·         The borrowing strategy confirming that an under borrowed position is being currently maintained and that a pragmatic approach to changing circumstances will be adopted i.e. if it was felt there was a significant risk of a sharp fall in long and short term rates then long term borrowings will be postponed and potential rescheduling from fixed rate funding to short term borrowing will be considered if it is cost-effective to do so. Conversely, if it was felt that there is a significant risk of a much sharper rise in long and short term rates than currently forecast, then the portfolio position will be re-appraised.

·         The Council’s approach to borrowing in advance of its needs confirming that the approach remains not to borrow 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 7.4.2 of the report.

·         The unlikelihood of debt rescheduling due to the still very large differences between premature redemption rates and the new borrowing rates.

·         The approach to investment confirming that if it is thought that Bank rate is likely to rise significantly within the time horizon, then consideration will be given to keeping most investments short term or variable. If it is thought that Bank Rate is likely to fall within that time period consideration will be given to locking into higher rates currently obtainable for longer period. The strategy in managing investment is to give priority to security and liquidity over the return on investment.

·         The management of risk confirming that the  Council has adopted a prudent approach to managing risk and defines its risk appetite by the means set out in section 8.2.4  of the report in terms of creditworthy counterparties, lending limits and credit ratings which are monitored daily.

·         Governance and control arrangements over treasury management processes, decisions and performance.

·         The Prudential and Treasury Indicators as detailed in Appendix 12 of the report which cover affordability and prudence and set out the limits for capital expenditure, external debt and the structure of the debt.

In response to questions by members, the Director of Function (Resources)/Section 151 Officer advised –

·         That there remains a high level of uncertainty over the economic outlook because of inflation, rising energy prices, supply shortages, some unresolved Brexit issues, tensions in Eastern Europe and in Westminster as well as concerns around economic recovery and the potential for further changes resulting from Covid.  It is hoped that many of these issues will have worked through by the summer and into the autumn thereby bringing more clarity and stability to the economic situation. Periods of lockdown drove prices down in 2021 and so an inflationary rebound was to be expected. And although inflation is projected to reduce there is a risk that higher inflation may continue for longer driven by global prices and high energy costs; how it will be managed will be a key factor. Overall 2022 is expected to be a challenging year economically.

·         That the Capital Budget monitoring report to the Executive for Quarter 3 2021/22 will confirm continuing slippage on the capital programme from schemes that have not progressed as much as predicted and this can be attributed to a number of factors ranging from value for money considerations linked to rising tender prices to planning delays. The Authority remains committed to fulfilling its capital programme commitments over the term of the plan and intends to borrow to that objective.

·         That social housing grants are now available to local authorities as well as Registered Social Landlords but represent a small element of funding. Capital expenditure on the Authority’s housing stock is funded by the Housing Revenue Account based on annual rental income which also funds repairs and maintenance and the cost of borrowing. Each proposed housing development is assessed on that basis and the assessment may be adjusted for some developments i.e. being prepared to meet repayment costs over a longer term  if it can be demonstrated that the development meets an urgent need in  a particular area in the knowledge also that repayment costs for other developments may be over a much shorter timeframe. The Authority seeks grant funding for each of its housing developments and Welsh Government grants are made available especially for innovative or green housing builds.

It was resolved to accept and to note the Treasury Management Strategy for 2022/23 and to forward the TM Statement to the Executive without further comment.