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 2023/24 was presented for the Committee’s consideration. The report was presented to ensure that the Council is implementing best practice in accordance with CIPFA’s Code of Practice on Treasury Management and included the Annual Investment Strategy, the annual MRP Policy Statement, the annual Treasury Management Policy Statement and the Treasury Management Scheme of Delegation.

The Treasury Management Strategy sets out the Council’s strategy and approach as regards borrowing and investment, the constraints on borrowing, determines a set of prudential indicators and determines the Council’s risk appetite and strategy in respect of investments. It covers the following two main areas –

·      Capital issues including the Council’s capital expenditure plans and prudential indicators along with the Minimum Revenue Policy Provision (MRP) Statement and,

·      Treasury management issues including the Council’s current treasury position, the prospects for interest rates, the Council’s Borrowing and Investment Strategies; the Policy on Borrowing in Advance of Need; Debt Re-scheduling, the Creditworthiness Policy and the arrangements for governance and control over treasury management processes, decisions and performance.

The report also included a commentary on the wider economic background and outlook and how these influence treasury management decisions.

In providing an overview of the report the Director of Function (Resources)/Section 151 Officer highlighted the following –

·      That any surplus cash which the Council has is currently invested in short-term deposit accounts, Call accounts and with other UK local authorities. The balance invested in these accounts was £46.2m as at 31 December, 2022. It is envisaged that this balance will reduce to around £38m and that an investment due to mature in February 2023 will not be reinvested but will instead return to the Council Fund to be used to support cash flow requirements and fund capital expenditure at the end of the financial year.

·      The Council’s capital expenditure plans and how these are to be financed (Table 3 of the report). The borrowing need for capital expenditure for 2023/24 is £26.118m.

·      The impact of the Council’s capital expenditure plans and the MRP charge on the level of external and internal borrowing as set out in Table 4 of the report.

·         A change to the Minimum Revenue Provision Policy. In 2018 the Council revised its MRP policy and adopted the Equal Instalment Asset Life method to calculate its MRP charge for both supported and unsupported borrowing. The revised policy from 1 April, 2022 adopts an annuity method following a similar method to a standard repayment mortgage where the combined repayment sum of principal repayment and interest remains constant and as a result, the amount of principal repaid in the early years is low and increases over time. Therefore, under the annuity method, the MRP charge is low in the initial years and increases over time. Although the actual sum charged remains the same with both methods, when the value of future charges is discounted back to current prices, the Annuity method provides a positive Net Present Value compared to the Equal Instalment Asset Life method. This is considered to be a more prudent approach.

·         The need to adopt an agile investment strategy for 2023/24 in order to optimise returns. The Committee was advised that if the Bank Rate continues to rise, then new deposits will be on a short-term basis. Conversely if the Bank Rate falls consideration will be given to locking in higher rates obtainable for a longer period. However, investing the Council’s surplus cash means that the money is not available for day-to-day purposes or to fund capital expenditure so the Council has to borrow. The challenge lies in maintaining a balance between obtaining the best from investments while avoiding borrowing at a high rate – the strategy therefore is to go longer term with investments while keeping borrowing short term.

·         That the Council’s investment priorities remain security first, portfolio liquidity second and then yield (return) although a more nuanced approach will be taken to liquidity and yield and where cash sums can be identified that could be invested for longer periods, the value to be obtained from longer term investment will be carefully assessed.

In response to points raised by the Committee on the contents of the report, the Director of Function (Resources)/Section 151 Officer clarified the following –

·      That any minor amendments/corrections will be made to the Strategy Statement ahead of its submission to the Executive and Full Council.

·      That although the capital budget is set in a way that shows how elements of it will be funded whether through grants, receipts, reserves and/or borrowing, on a day to day basis borrowing is undertaken to meet the Council’s cash flow requirements and to replenish cash balances but is not specifically linked to any particular item of capital expenditure.

·      That Link Group has been acting as the Council’s Treasury Advisors for a number of years and were successful when the contract was last tendered in 2018/19.

·      That borrowing is increasing because the Council has reached the limits of internal borrowing meaning that ongoing capital expenditure has to be funded from external borrowing. The Housing Revenue Account generates the greatest amount of borrowing need, and this is in order to meet the housing development priorities set out in the HRA Business Plan. Whilst HRA reserves have been used to fund this expenditure, as these are run down to a level which the Council deems is appropriate, any new capital expenditure has to be financed by external borrowing. With regard to repayments, the principal of a loan taken out is not paid back on an annual basis in the same way as a mortgage but is repaid when the loan term comes to an end. Appendix 5 to the report provides a loans maturity analysis from 2023/24 onwards. However, as part of any decision on future borrowing the Council will aim to ensure that the repayment date is arranged so as to smooth out repayments as far as possible.

·      With regard to the decrease in non HRA/General Fund capital expenditure over the course of the next three years, this is funded as part of the annual settlement from Welsh Government and includes the General Capital Grant which can be spent as the Council wishes and supported borrowing where the revenue costs of borrowing are funded by Welsh Government through the annual revenue settlement. While these funding streams have remained at much the same level for a number of years and are not expected to increase significantly in future, Welsh Government is increasingly using grant funding to drive projects in areas where it wishes to see improvements and/or change e.g. school modernisation. The capital allocation for 2023/24 therefore includes a provision for grant funding from Welsh Government which the Council knows will be forthcoming while for the following two years the allocation covers the core funding only. However, when the Strategy is reviewed next year, it is likely that further capital grant funding will have been made available by Welsh Government which means that the figures for 2024/25 and 2025/26 can be revised upwards. It is also expected that an increasing amount of Welsh Government grant funding in future years will come with net zero conditions. In addition, the scale of the Council’s capital programme is reducing because the funding now buys less. Given that the core capital funding is presently just about sufficient to cover the maintenance of the Council’s existing assets, the Council is reliant on grant funding to support any additional capital expenditure.

It was resolved to accept and to note the Treasury Management Strategy Statement for 2023/24 and to forward the report to the Executive without further comment.

No further action required.