Agenda item

The Head of Financial Management Gary Adams presented the report.  He explained that the report fulfilled a requirement to set a Treasury Management Strategy for the next financial year in line with the CIPFA Code of Practice. The strategy covers how the Council manages its’ cash flow, borrowing and investments and associated risk.  The Council has to operate within this framework and the strategy sets high level boundaries, although we adopt a flexible approach in day-to-day activities depending on market conditions and advisor guidance, such as counterparty and duration limits.  Corporate Audit Committee is the scrutiny body for the strategy, prior to consideration and approval at the February Council and Cabinet meetings.

He outlined the following issues:-

·  The economic update was fast moving - the Bank of England was trying to balance the interest rate policy with the economic recovery, GDP had reduced in Quarter 3, inflation was above 5% with an expectation of a 0.25% increase in the bank rate, which was agreed at today’s monetary policy committee meeting;

·  Overall the banking sector’s credit position had stabilised over the past year, with some positive move on credit ratings allowing increased investment durations to 100 days;

·  The 2022/23 budget was based on rates of 0.25% for short term investments, 3.5% for the longer term strategic investments and borrowing at an average rate of 2.5%;

·  Current position as at 31^st December 2021 on the borrowing and investment portfolios was capital borrowing of £220m and investments of £83m;

·  The borrowing strategy would continue to focus on using internal cash balances to minimise the impact on the revenue budget of holding cash in advance of need and reducing treasury risk of holding excessive investment balances;

·  The Council continues to avoid borrowing activity in relation to investment assets acquired primarily for yield in line with PWLB rules;

·  Last year an Environmental, Social & Governance (ESG) investment approach was incorporated into the strategy and a £5m limit was set for longer term strategic investment in ESG focussed funds, as well as investing £5m in shorter term liquidity deposits where the deposits are used to support ESG projects;

·  Treasury management indicators related to borrowing limits were linked to capital programme requirements to be approved as part of the budget report, the other indicators focussed on credit ratings, liquidity and the maturity structure of borrowing and investments.

During questions the following points were raised:-

·  With the longer term strategic investments the CCLA property fund return was 3.5%, with ESG strategic investments also currently expecting returns of between 3-4% (Cllr Lucy Hodge);

·  The impact of the inflation increase on the Council was impacting on other services – energy contracts, social care, home to school transport – contingencies were incorporated into the 2022/23 Council budget proposal, and represent around a 5% provision (Cllr Andy Furse);

·  There was a time lag of 18-24 months before the pressure fed through the system (John Barker independent member);

·  In respect of the PWLB rules for borrowing for yield and using the capital estate for income, it was explained that it depended on the primary purpose of the investment and the Section 151 Officer would make a judgement (Cllr Andy Furse);

·  In relation to opportunities to pay off the LOBO loans, our treasury advisors were used to negotiate a potential repayment.  However, due to the penalty for early repayment and the recent movement in interest rates the repayment was not currently being pursued. The position would be kept under review dependent on interest rates and whether a saving could be achieved through repayment (Cllr Lucy Hodge);

·  The capital financing requirement (CFR) is the implied borrowing requirement based on capital spending. Actual borrowing taken factors in reserves and cash balances.  It is common for Councils not to borrow up to the CFR limit and it makes sure they do not over-borrow.

RESOLVED

1)  To recommend the proposed actions within the Treasury Management Strategy Statement (Appendix 1) to February Council; and

2)  To note the Treasury Management Indicators detailed in Appendix 1.