Agenda item
Treasury Management Outturn Report
This report updates members on Treasury Management activity and confirms that the Council has complied with its Prudential Indicators for 2021/22.
Minutes:
Amanda Healy, Head of Finance, introduced a report updating members on Treasury Management activity and providing confirmation that the Council had complied with its Prudential Indicators for 2021/22.
Key issues highlights were as follows:
· The economic background in relation to the current outturn position. These included the continuing economic challenges from the pandemic recovery which had been further exacerbated by the war in Ukraine and sharp increases in both inflation and interest rates.
· Members were updated that CIPFA had published its revised Prudential Code for Capital Finance and Treasury Management Code on 20 December 2021, which included key changes around permitted reasons to borrow, knowledge and skills and the management of non-treasury investments with a view to supporting transparency in reporting. In addition, HM Treasury had issued revised guidance in August 2021 relating to the Public Works Loan Board (PWLB) lending facility, which now included 12 examples of permitted and prohibited use of PWLB loans (including the purchase of investment assets primarily for yield). Members noted that the Council, as permitted, had delayed introducing the revised reporting requirements within the Prudential Code until the 2023/24 financial year.
· In terms of a local context, the Committee were advised that the Council’s total level of borrowing as of 31 March 22 was £684.6m arising from its revenue and capital income and expenditure with the underlying need to borrow for capital purposes measured through the Capital Financing Requirement (CFR). It was noted that borrowing had increased slightly over the past year, in order to meet the requirements of the Council’s long term Capital Investment Programme. Having considered the appropriate duration and structure of the projected borrowing requirement the Council’s borrowing strategy included a combination of both short term borrowing and long term repayment loans with a mixture of loan structures. Whilst this had involved the Council borrowing through a range of long-term fixed rate loans lower cost solutions (recognising the current challenges in terms of interest rates) were also being pursued with details on the breakdown of current loans provided in section 7.4 of the report.
· Members noted the update provided in relation to other debt activity, as detailed within sections 7.7 – 79 of the report.
· In terms of investment activity, the Committee noted the current investment position as detailed within section 8.2 (Table 4) of the report, with the total balance of investments as at 31 March 22 £98.6m. In noting the prudential requirements within the CIPFA Code, the Council’s objective in terms of investment had remained to strike an appropriate balance between risk and return in order to minimise the risk of incurring losses from defaults and the risk of receiving unsuitably low investment income. Given the low interest rate environment and level of borrowing required the approach had been focussed on holding short term investments, providing the Council with improved liquidity, alongside the holding of funds with high credit ratings in order to provide increased security over the Council’s investment portfolio.
· In addition. Members noted the level of non-Treasury investments held by the Council, which totalled £213.5m split between shareholding in subsidiaries and loans to subsidiaries in the form of i4B Holdings Ltd and First Wave Housing.
The Chair then invited the Committee to raise questions on the report, with the responses summarised as follows:
· Officers confirmed that the Council had strategies in place to implement the revised CIPFA Prudential Code for Capital Finance and Treasury Management Code effectively with it confirmed that the implementation of both codes was not likely to incur any additional costs to the Council.
· Further details were sought on the potential impact of the requirement within the revised Prudential Code in terms of authorities not being allowed to borrow to invest primarily for financial return and the type of activities covered, with concerns highlighted around how this may relate to objectives in supporting community wealth building. Confirmation was provided that the Council had not borrowed or planned to borrow to invest primarily for commercial return so would be unaffected by these changes to the Code, however, in order to provide further assurance it was agreed to provide Councillor Chan (as Vice-Chair) with further details outside of the meeting on the definition within the Prudential Code around not borrowing to invest primarily for financial return and how this related to objectives in supporting community wealth building (along with examples). (Action: Minesh Patel/Amanda Healy)
· In response to a query regarding the financial modelling undertaken in relation to the Treasury Management Strategy, the Committee were advised that Treasury Management activity was conducted in accordance with the CIPFA framework code of practice and also subject to assessment and review by the Council’s independent Treasury Management advisors.
· In response to further details being sought around the borrowing strategy relating to the Council’s CFR members were advised that whilst the Council had continued to borrow, where necessary, to meet the funding requirements of the agreed capital programme this had been in conjunction with the use of internal resources, such as usable reserves and working capital. The strategy had also sought, where possible, to diversify funding sources and to evaluate and purse lower cost solutions and opportunities wherever possible taking account of current market conditions. Given the current volatility in relation to the cost of materials and construction costs members were, however, advised of the risks identified in relation to funding and delivery of the Capital Programme and the increased focus, as a result, in terms of seeking alternative sources and options in terms of borrowing to fund the programme
· In response to a comment regarding the benchmarking undertaken in relation to the credit worthiness of Brent’s investments, as detailed in section 8.6 and Table 5 of the report, clarification was provided regarding the progression of the risk and return metrics and how these impacted on the decision making around security and liquidity parameters as a means of informing the approach towards shorter term and longer term investments. In order to provide further background and context, members felt it would be helpful if further details could be provided for the Committee on the criteria relating to the credit rating scores detailed within section 8.6 of the report. (Action: Minesh Patel/Amanda Healy)
The Chair thanked officers for the detailed and transparent nature of the report and as there were no further issues raised the Committee RESOLVED, subject to the actions identified during the meeting, to:
(1) Note the 2021/22 Treasury Management Outturn Report in compliance with CIPFAs Code of Practice on Treasury Management ,which was also due to be referred onto Cabinet and Council for consideration.
(2) Note that for 2021/22 the Council had complied with its Prudential Indicators which were approved by Full Council on 14 June 2021 as part of the Council’s Treasury Management Strategy Statement and Capital Strategy Statement.
Supporting documents:
- 09. Treasury Management Outturn Report 21-22, item 9. PDF 286 KB
- 09b. Appendix 1 - Debt & Investment Portfolio, item 9. PDF 20 KB
- 09b. Appendix 2 - Prudential Indicators, item 9. PDF 184 KB
- 09c. Appendix 3 - Internal Investments Average Rate vs Credit Risk as at 31March 2022, item 9. PDF 282 KB