Agenda item
Treasury Management Report
This report looks at recent treasury management developments, in particular, the Department of Communities and Local Government (DCLG) consultation on Guidance over local authority investments, and the revised CIPFA Code of Practice on Treasury Management. The report also outlines proposals to amend the current Lending List.
Minutes:
Martin Spriggs (Head of Exchequer and Investment, Finance and Corporate Resources) introduced the report and highlighted the main issues raised in the draft guidance on local authority investments that had been published by the Department of Communities and Local Government (DCLG), including:-
· The need for clear policies on duration of loans and the share of the portfolio that can be lent for longer periods
· Local authorities should not rely solely on credit ratings and should consider other information
The Council had considered the guidance issued by the DCLG and these would be taken into account for the Budget report. Martin Spriggs reported that there had also been revisions to the Chartered Institute of Public Finance and Accountancy (CIPFA) Code of Practice on Treasury Management within the past two weeks, including a need for a mid year review of the annual treasury strategy, the Audit Committee to be responsible for ensuring effective scrutiny of treasury management strategy and polices and that Members of the Audit Committee have access to appropriate training opportunities.
Martin Spriggs then updated Members on the Icelandic bank deposits, stating that the administrators of Heritable Bank had made their first repayment of £1.6m in July 2009 and a second payment of £1m was expected in December 2009. Within the last few days, the Winding-Up Board for Glitnir Bank had announced that local authorities could not be considered secured creditors. However, councils were likely to challenge this and legal advice received suggested that local authorities were in any case considered secured creditors under Icelandic Law. Martin Spriggs reminded the Committee that the Council had been using a severely reduced Lending List since October 2008 in order to reduce risk. However, it was felt that the financial system was more stable now than at the same point last year, and for this reason one of the proposals included increasing the duration of deposits in order to increase return opportunities. Martin Spriggs then drew Members’ attention to the proposals as set out in paragraph 3.10. He also circulated an additional paper detailing recommendations and responses to a House of Commons Select Committee report on local authority investments in Icelandic banks.
During discussion, Councillor Butt enquired whether the Council’s proposals to request permission to capitalise £2m over 25 years was a standard request and would this have any effect on future budgets. He also sought further information on future returns from Heritable Bank.
Although the Director of Finance and Corporate Resources has delegated authority to appoint the treasury adviser, in the interests of transparency the Chair requested that the Audit Committee be consulted on the outcome of the tendering for a treasury adviser. He sought further details with regard to the requirement under the draft DCLG Guidance that the Treasury Strategy be agreed by Full Council and asked whether it would be considered by the Audit Committee and if so, that it be given sufficient time to examine the Strategy prior to it going to Full Council. The Chair enquired whether the Council would be asked to contribute towards any legal challenge in respect of Glitnir Bank. The question was also posed as to whether the Council would initially continue with low interest deposits even after interest rates rose again in order to minimise risk.
In reply, Martin Spriggs advised that the request for capitalisation of £2m over 25 years was a middle range option offering least risk to the budget and the usual period was for 50 years. He agreed to report back to the Audit Committee the outcome of the tendering for a treasury adviser and confirmed that the Treasury Strategy would be presented to the Committee before it went to Full Council. It was not yet known whether the situation with regard to Glitnir Bank would result in legal proceedings and if so what court costs would be involved. Martin Spriggs advised that in order to minimise risk, lower interest deposits would initially be pursued in the event of a rise in interest rates and this would be subject to review depending on changing economic circumstances. The recent review of the Lending List had concluded that higher interest deposits were still too large a risk. The Council continued to lend only to high quality organisations and of the 32 banks where deposits had been made, only three, all Icelandic, had collapsed. Martin Spriggs confirmed that following a further return from Heritable Bank in December 2009, a further one was due early in 2010.
Duncan McLeod added that care would be given when putting together the municipal calendar of meetings to ensure that there was sufficient time for the Audit Committee to consider the Treasury Strategy prior to it being considered by Full Council.
Officers agreed to a request made by the Chair that training be provided to Members of the Committee in respect of the Treasury Strategy.
RESOLVED:
(i) that the steps taken either previously or in response to the Department of Communities and Local Government draft guidance and revised CIPFA Code be noted; and
(ii) that proposals to amend the Lending List as set out in paragraph 3.10 be noted.
Supporting documents: