2019/20 Treasury Management Strategy
The report presents the draft Treasury Management Strategy for 2019/20 for consideration by the Committee.
Daniel Omisore (Head of Finance, Brent Council) introduced the report which set out the draft Treasury Management Strategy for 2019/20. He informed Members that the final version, incorporating the views of the Committee, would be included in the budget report presented at the Full Council meeting on 25 February 2019.
In relation to the external context, it was noted that the United Kingdom’s (UK) progress negotiating its exit from the European Union (EU), together with its future trading arrangements, would continue to be a major influence on the Council’s Treasury Management Strategy for 2019/20. In addition, the big four UK banking groups had divided their retail and investment banking divisions into separate legal entities under ring-fencing legislation and European banks had been considering their approach to Brexit (for details please see paragraphs 9 and 11 of the report respectively (page 64 of the Agenda pack)).
As at 31 December 2018, the Council had held £397 million of borrowing and £114 million of investments, with future estimated borrowing requirements set out in Table 1. Mr Omisore noted that there had not been any breaches of the Treasury Management Strategy or Prudential Indicators since it had been agreed by Council last year. In the past 12 months, the Local Authority’s investment balance had ranged between £190 and £89 million. However, it was forecast to decline as the Councils began the implementation of its updated capital programme.
Members enquired about the repayment of one of the Council’s Lender Option Borrower Option loans (LOBOs), the impact of a potential collapse of property prices on the Council’s stock and the impact of Brexit on the cost of borrowing. Mr Omisore said that the Council had managed to secure a favourable deal with a lender which had saved the Local Authority money and had contributed to lowering its debt position.
Although the existing Investment Strategy had provisions for purchasing shares in companies that invested mainly in real estate, this option had not yet been taken up. However, this is constantly monitored and should circumstances change, officers would consider this, depending on a number of factors and after undertaking appropriate due diligence prior to making a decision. This also applied to any investments with Registered Providers which would be individually assessed and discussed with Arlingclose, the Council’s advisors, prior to investing. A significant proportion of the Council’s investments constituted short-term lending to local authorities which was in line with the Council’s 2018/19 Investment Strategy. This had been seen as a secure form of investment which provided benefits for both sides. Moreover, Arlingclose provided real time updates and ratings on all categories of investments which were constantly monitored and reviewed. As far as the implications of Brexit on the cost of borrowing were considered, Conrad Hall (the Council’s Chief Finance Officer) said that the Local Authority was taking advice from Arlingclose, as of course it was not possible to predict with certainty future changes to interest rates. In his view, given the likely short-term macro-economic impact of a “no deal” Brexit, the most probable fiscal response from central banks and government would be to reduce interest rates in order to stimulate investment.
In response to a question about drawing down on surplus funds, Mr Omisore explained that officers routinely modelled the Council’s balance sheet to predict the levels and likely usage of reserves. It was noted that such an exercise had been presented alongside the Borrowing Strategy Report to Cabinet in September 2018. Mr Omisore emphasised that if the Capital Programme was to be delivered as planned, the Council could have a borrowing requirement within the next 12-24 months.
The Chair summarised the contents of the discussion, highlighting the Committee’s concerns in relation to changes in the property market and the impact of Brexit on interest rates
(i) The contents of the 2019/20 Treasury Management Strategy report, be noted;
(ii) An update on treasury management activity be presented to the Committee in six months’ time;
- 09. 2019-20 Treasury Management Strategy Cover Report, item 9. PDF 156 KB
- 09a. 2019-20 Treasury Management Strategy, item 9. PDF 545 KB