Agenda item

The Divisional Director – Business Support presented the report.

He set the Strategy in context by referring to recent speculation about the solvency of the Co-operative Bank. Members should be reassured by the fact that the Council had not invested with this bank for some time because of the Strategy. He reminded Members that the Strategy was reviewed annually. It had already been approved by Cabinet and would be submitted for approval to Council on 14^th February. Any comments made by this Committee would be reported to Council.

He drew attention to the table setting out the scope of the Strategy in paragraph 5.3 of the covering report

He said that the funding of capital investment from cash flow would be maintained in 2017/18 because of the continuing low interest rate environment. This practice had resulted in the Council’s actual debt being much lower than its borrowing limits. The borrowing limits seemed high because the Council had a substantial capital programme for the next 3-4 years. A significant proportion of this would be funded by borrowing. The borrowing limit would allow the Council to respond flexibly to fluctuations in cash flow.

A Member asked whether the borrowing limits took account of possible decreases in Government grant to the Council. The Divisional Director – Business Support replied that decreases in Government grant were not treated as a risk. The limits set were considered affordable limits, based on a judgement about the likely level of future interest rates, so the potential need to borrow up to the limit had been factored in. The Council had, in return for submitting an efficiency plan, secured a four-year settlement with the Government, which would be changed only in very exceptional circumstances. The Council also maintained a capital financing reserve, which would provide a small cushion against a shock rise in interest rates, allowing higher interest to be paid while the revenue budget was rebalanced.

The Divisional Director – Business Support drew attention to Arlingclose’s interest rate forecasts on agenda page 23. Arlingclose expected Bank Rate to remain at 0.25% up to the end of 2019.

He commented on the Investment Strategy (agenda page 29). He emphasised that only very risk-averse positions were taken; the Council had not invested in Icelandic banks and, as already stated, nothing was invested in the Co-operative Bank. The Council’s Treasury Management Team managed the Avon Pension Fund’s internal cash. It also managed the West of England Revolving Investment Fund and the Local Growth Fund on behalf the Local Enterprise Partnership (LEP). These would be transferred to the West of England Combined Mayoral Authority (MCA) on 1^st April. The MCA had actually come into being on the previous day. In reply to a question from a Member, he explained that the MCA could meet and take decisions before the election of a Mayor, which would take place in May this year, and that it was due to meet for the first time in late February or early March when it was expected to appoint statutory officers, including a Chief Executive, Monitoring Officer and Chief Finance Officer (CFO). It was envisaged that he would be seconded to the MCA to act as its part-time CFO, with a permanent appointment being made after the election of the Mayor. It would be surprising, in view of the size of the funds managed by the MCA, if it did not appoint a full-time CFO.

A Member asked whether any discussions were planned or in progress about aligning the procedures of the MCA with those currently applied in the Council and to the LEP fund. The Divisional Director – Business Support explained that as acting CFO to the MCA he was establishing the basic financial procedures and that B&NES finance officers would provide services to the MCA under a service level agreement. B&NES would be fully reimbursed for these services, which would enable it to retain skills and staff resources in an increasingly challenging environment. The MCA’s initial Treasury Management and Investment Strategy will be based on the Council’s.

A Member asked him about the impact of his secondment on the Council’s Finance Team. He replied that consultations were already taking place about the restructuring of the team, and he was sure that there would be sufficient staff resources to support the Council. There was no threat to the funding of his own post from the fact that 50% of his salary would be paid by the MCA until it appointed its own CFO. In reply to a further question about the risks to the MCA from the spending plans of any of the member authorities, he pointed out that all financial decisions by the MCA had to be agreed unanimously by the member authorities.

A Member asked about the Council’s use of Natwest Bank given its low credit rating. The Divisional Director – Business Support replied that Natwest’s credit rating was too low for the Council to invest money in them or leave significant sums of money with them overnight, but it was the Council’s main bank for ordinary banking transactions.

A Member asked how often the Treasury Management Advisor’s appointment was reviewed. The Finance and Resources Manager replied that it was reviewed every three years, with the possibility of an extension period. The Divisional Director – Business Support said that there had been a contraction in the number of firms offering this service. Four or five years ago there were about five, but now only two, Arlingclose and Sector.

A Member asked about the reporting of changes to borrowing during the year. The Divisional Director – Business replied that a report was made to every formal and informal meeting of the Cabinet. Changes to projected borrowing might be caused by construction being delayed because archaeological work had to be carried out, for example, or by the fact that buildings could only be acquired as and when they came onto the market. Borrowing could be transferred between financial years to reflect this. In reply to a question from the Chair he said that the establishment of the Brunel Investment Company would have no impact on the cash management of the Avon Pension Fund.

RESOLVED to recommend to Council:

1. The actions proposed within the Treasury Management Strategy Statement (Appendix 1).

2. The Investment Strategy as detailed in Appendix 2.