Agenda item

The Finance Resources Manager presented the report. He reminded Members that in February 2010 the Council had, in accordance with the CIPFA Treasury Management in the Public Services: Code of Practice, designated the Corporate Audit Committee as the required body to scrutinise the Treasury Management Strategy before the start of each financial year and to receive a mid-year report and annual report on it. The Committee was also being invited to approve the Council’s Annual Investment Strategy.

A Member expressed concern about the sharp increase in the upper limit for fixed interest rate exposure from 2009/10 (£82m) to 2011/12 (£204m) recorded in the table on page 18 of the agenda. The Finance Resources Manager explained that this resulted from frontloading of funding for the capital programme. Money would be borrowed in advance to take advantage of the current low interest rates. One of the financing options being considered was a bond issue. The Council had a duty to demonstrate that it was acting prudently and that there was sufficient revenue to cover the cost of loans. The Director of Resources and Support Services said that the capital programme was funded partly by government grant and partly by borrowing. All borrowing was fully covered by revenue and the issue was to identify the most cost-effective form of borrowing. The Member responded that the Committee’s duty was to focus on risks and that there appeared to have been no risk analysis of the increase in this borrowing limit; he was concerned about the potential liabilities for the Council and local taxpayers in future years. He also wondered whether government loans might not be cheaper than a bond issue. The Director of Resources and Support Services replied that there were various kinds of risk associated with the capital programme, including financial risks, impacts on services and risks relating to the management of projects. It was crucial to choose the optimum method of financing to secure the best value for the Council. The Government’s decision to raise interest rates on new loans from the Public Works Loan Board meant that other sources of finance might now be more favourable. The Finance Resources Manager said that bonds could allow more flexible and efficient financial management, because they could be traded in the market. In response to a question from a Member, he explained that the figure of £35m given in the table on page 22 of the agenda referred to money already spent on the capital programme.

The Chair emphasised the concern felt by Members at a large increase in borrowing by the Council at a time when spending was being cut and the economic outlook was uncertain. The Director of Resources and Support Services replied that the Council had a clear direction of where it wanted to go; the question was whether all factors had been taken into account in planning the route ahead. He felt sure that when the budget was presented at the next Council meeting Members would see that officers had done a thorough job. There was a decision to be made about the best method of borrowing, and he would come back to the Committee when further work had been done on this.

A Member noted that the central interest forecast by Sterling Consultancy Services given in the table on page 21 of the agenda was in line with that of the majority view, namely that there would be a gentle uplift from late 2011. There could also be threats from the performance of the UK and global economy. The Director of Resources and Support Services said that the current historically low interest rates provided a window of opportunity for the Council to borrow now. This coupled with the fact that all projects were planned to cover their costs, should ensure that future financial risks were minimised.

RESOLVED

1. That the actions proposed within the Treasury Management Strategy Statement have been scrutinised and should be submitted to February Council for approval.

2. The Investment Strategy as detailed in Appendix 2 has been scrutinised and should be submitted to the February Council for approval.

3. That the changes to the authorised lending lists detailed in Appendix 2 and highlighted in Appendix 3 have been scrutinised and should be submitted to February Council for approval.

4. To note that at the Cabinet meeting on 2^nd February 2011 it is recommended to delegate authority for updating the Prudential Indicators (detailed in Appendix 1), prior to approval at Full Council on 16^th February 2011, to the Divisional Director – Finance and the Cabinet Member for Resources, in light of any changes to the recommended budget as set out in the Budget Report also on the agenda for the Cabinet meeting.