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 a review of treasury management activity in 2022/23 was presented for the Committee’s consideration. The Council is required by regulations issued under the Local Government Act 2003 to produce an annual treasury management review of activities and the actual prudential and treasury indicators for 2022/23.

The report set out the following financial outcomes in the 2022/23 financial year –

·      External factors including the economic context, interest rate performance and the impact of Covid-19.

·      Internal factors including the performance of capital expenditure, the impact on the reserves and cash balances, risk appetite to investments, the borrowing taken by the Council and the impact on the Capital Financing Requirement.

·      The Treasury Management Strategy in 2022/23 including debt management, the implementation of the new MRP policy and the Council’s borrowing and investments during the year.

·      Controlling Treasury Management through Prudential Indicators and how these are managed.

·      Comparison of actual Prudential Indicators with the forecast at the beginning of the year

·      Prospects for 2023/24 and beyond.

The Director of Function (Resources)/Section 151 Officer referred to the table at paragraph 3.1 of the report which showed the Council’s actual capital expenditure for the year – one of the required prudential indicators and how this was financed. The budget was underspent by £14m which is a much-reduced slippage compared to that in previous years with the projects listed in the paragraph accounting for the underspend. The Council’s reserves and cash balances are set out at paragraph 3.2 of the report and show useable reserves totalling £59.779m. There was no externalisation of borrowing in the 2022/23 financial year, instead the Council has continued to apply its internal borrowing strategy as investment rates have been below long-term borrowing rates meaning that value for money considerations would indicate that value could best be obtained by avoiding new external borrowing and using cash balances to finance new capital expenditure, or to replace maturing external debt. The table at paragraph 3.3.2 of the report show that the Council’s internal borrowing position on 31 March, 2023 was £20.3m. During the year, the Council did not enter into any other short-term borrowings. An interest free loan of £1.123m was received in the year to fund capital expenditure on energy saving projects and will be repaid in instalments.

The expected investment strategy was to keep to shorter term deposits although the ability to invest out to longer periods was retained. Investments returns picked up throughout the course of 2022/23 as interest rates rose. The interest budget of £5k that was set for 2022/23 was based on the previous year’s interest received. However rising interest rates provided more opportunities for investing surplus cash with average balances of £55.8m returning £0.863m at an average interest rate of 1.55%. The downside to higher interest rates is that borrowing has become more expensive. Details of all new investments in the year with their respective interest rates were provided in the table at paragraph 3.6 of the report. The strategy going forwards is to eschew investing with local authorities as the Council’s cash balances are now reducing, more options are available with the banks and because of the financial uncertainty and therefore increased risk surrounding local authorities as a number of councils find themselves in financial difficulties.

The principles of the Council’s treasury management strategy for 2022/23 are set out in section 4 of the report together at section 5 with a summary of the agreed prudential indicators and what they mean. Section 6 of the report analyses the difference between actual and forecast Prudential Indicators for 2022/23 and confirms that the Council complied with its legislative and regulatory requirements. This performance shows that the Council’s treasury management activities are being undertaken in a controlled way to ensure the financial security of the Council and do not place the Council at any significant financial risk in terms of unaffordable or excessive borrowing.

The Committee was pleased to note and took assurance from the Council’s solid financial position and its prudent and considered approach to borrowing and investment which placed it on a stronger footing than many councils which now find themselves in difficulty due to high levels of debt having taken on significant amounts of borrowing. In discussing the report the Committee asked questions about the Council’s capital expenditure specifically –

·                     The discrepancy between the £55m total estimated capital expenditure for 2022/23 noted at paragraph 3 of the report and the ££35.961m noted as the original total capital expenditure under the Prudential Indicators at paragraph 6.

·                     Whether unspent capital monies are clawed back by Welsh Government

·                     Whether there is sufficient feedback on the progress of capital projects to ensure the Council has sufficient cash to meet its financial commitments as they fall due.

The Director of Function (Resources)/Section 151 Officer advised that the Council’s approach to treasury management has been risk averse in many respects; those councils that are now struggling financially have used their borrowing powers to invest in more high-risk ventures to generate income whilst recent market and economic conditions have meant that the expected returns have not materialised leaving those councils in a highly indebted position. The Council in Anglesey has consistently been careful in its investments and has targeted capital expenditure to priority areas where the need is greatest. It has also been prudent in the use of reserves recognising the need at times to balance budgets without recourse to reserves and to spend on items that it wants to spend on which has maintained a healthy level of reserves balance. The Council’s reserves and balances are its “rainy day” funds to help it deal with emergencies and unexpected costs.

With regard to capital expenditure the figure of £35.961m is the original capital budget approved by the Council in March 2022. Added to that subsequently is slippage from the previous year which has been carried over with the approval of the Executive as well as capital grants which are awarded during the year. The capital budget at its starting point as approved by the Council changes over time and those changes are authorised by the Executive sometimes retrospectively in the case of grants that have already been accepted. The Council has been successful in ensuring that all grant funding is spent and it is only on rare occasions that unused grant monies have been returned to Welsh Government. Should a grant funded project be completed under budget then the final grant claim would reflect the fact; in the event of slippage the Council ensures that the grant funder’s approval for the revised timetable is obtained so no funds are lost because the conditions of the grant offer were not adhered to. The Council’s capital expenditure is monitored quarterly with a higher level of capital spend being incurred in the 2^nd and 3^rd quarters when weather conditions are more favourable. In terms of cash management the Council carries in the region of £10m in available cash which is enough to meet its immediate ongoing financial commitments, interest is paid on the funds the Council has in its call accounts albeit at a lower rate than were those funds invested for a fixed term.

The Committee made a general point about the complexity of financial reporting requirements which made it difficult for the Council to convey its financial position and how it spends its money in a way that is transparent and understandable to the wider public. The Director of Function (Resources)/ Section 151 Officer advised that local authority financial reporting particularly with regard to its financial statements, is subject to a number of codes of practice and regulations which determine what and how information is reported. It is hoped that through the Council’s democratic process, specifically the Governance and Audit Committee, the Executive and Full Council, elected members are able to provide Anglesey’s council taxpayers with assurance that the Council is making the best use of resources.

It was resolved –

·                To note that the outturn figures in the report will remain provisional until the audit of the 2022/23 Statement of Accounts is completed and signed off; any resulting significant adjustments to the figures included in the report will be reported as appropriate.

·                To note the provisional 2022/23 prudential and treasury indicators set out in the report.

·                To note the annual treasury management report for 2022/23 and forward the report to the Executive without further comment.