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Matter which the Chairman has decided is urgent by reason of the need for the matter to be discussed prior to the next meeting of Council on 2nd March, 2016

 

 

Agenda Item No.

 

 

THE VALE OF GLAMORGAN COUNCIL

 

AUDIT COMMITTEE: 22ND FEBRUARY 2016

 

REFERENCE FROM SCRUTINY COMMITTEE (CORPORATE RESOURCES): 9TH FEBRUARY, 2016

 

 

“           TREASURY MANAGEMENT AND INVESTMENT STATEMENT 2016/17 (S151O) –

 

The Treasury Management Strategy itself covered a rolling period of three years and was intended to link in to the Medium Term Financial Planning process.  The Investment Strategy covered the next financial year and also included a number of statutory Prudential Indicators that may be used to support and record local decision-making. The proposed Treasury Management and Investment Strategy for 2016/17, was attached at Appendix 1 to the report.  

 

In regard to the proposed Strategy 2016/17, as at 31st December, 2015 the Authority had placed all of its investments with either the 'Debt Management Account Deposit Facility' (DMADF) of the Bank of England which were guaranteed by the UK Government or placed with UK Local Authorities.

 

The Authority would continue to use credit ratings from the three main rating agencies Fitch Ratings Ltd, Moody’s Investors Service and Standard & Poor’s to assess the risk of loss of investments.  The lowest available credit rating would be used to determine credit quality.  In addition, regard would be given to other available information on the credit quality of banks and building societies.

 

In terms of the interim report, the Council’s treasury management operations entered into for the period 1st April, 2015 to 31st December, 2015, were in accordance with the Council’s approved strategy on Treasury Management.  

 

The following table sets out the monies borrowed / repaid during the period. 

 

Loan Type

Opening Balance

Received

Repaid

Closing Balance

 

01/04/2015

 

 

31/12/2015

 

£’000

£’000

£’000

£’000

PWLB

90,266

     63,156       

     (812)

       152,610

Other Long   Term Loans

    6,002

           0

         (2)

        6,000

Temporary   Loans

      100

760

(760)

          100

Total

     96,368

    63,916      

     (1,574)

     158,710

 

Loans borrowed from their Public Works Loan Board (PWLB) were intended to assist Local Authorities in meeting their longer term borrowing requirements.  The above loans were all at fixed rates of interest.  The rate paid on each loan was largely dependent upon the original duration of the loan and date taken out.

 

Other long term loans represented those non-PWLB loans that are repayable at least one year or more from the date they were advanced.  The bulk of this debt was represented by two market loans of £2,000,000 and £4,000,000. The balance of this debt was local bonds which expired during the period.

 

Temporary loans represent those loans that were borrowed for a period of less than one year, borrowed on notice.

 

The Council’s investments for the period to 31st December, 2015 were set out below:

 

Borrowing Institution

Opening Balance

Invested

Returned

Closing Balance

 

01/04/2015

£’000

£’000

31/12/2015

Local   Authorities

      30,000

74,000

      (54,000)

        50,000

Debt   Management Account Deposit Facility

     51,125

1,155,130

(1,166,005)

        40,250

Totals

         81,125

 1,229,130

(1,220,005)

       90,250

 

Interest, at an average rate of 0.33% and amounting to £201,399 had been received from maturing investments for the first nine months of 2015/2016.

 

General discussion ensued regarding the Council’s intended Borrowing Strategy, with the Chairman noting that the interest rates contained within the Statement were high in comparison to interest rates that you would normally find and available from high street banks.  He also indicated that the saver rates were also low compared to those that could be obtained from high street banks.  In response, the Principal Accountant indicated that the priority of the Council internally was to use cash investments to limit the Council’s borrowing and also to minimise risk.  In addition, she also alluded to debt rescheduling / repayment and to advice from advisors on the same which indicated that any savings made from early repayment would be small taking account of premiums that would likely to be charged for an early repayment. 

 

A Member of the Committee enquired if any advice had been obtained from CIPFA or the Council’s external advisors in relation to limiting interest rates on borrowing and maximising income on interest saving rates.  In response, the Principal Accountant acknowledged the point regarding low interest rates available to the Council and with this in mind, officers would continue to discuss the issue with treasury advisors.  In addition, the Section 151 Officer made reference to those Local Authorities who had rescheduled borrowing to reduce budgetary pressures, the consequence of such were likely to have short term benefits but with long term costs.  She also referred to the Wales Audit Office’s view that Local Authorities should resist rescheduling loan repayments given the wider context around the Future Generations Bill and placing debt onto later generations. 

 

Another Member referred to the Council’s new Bankers and enquired if they were performing to the Council’s expectations.  In response, the Section 151 Officer indicated that the new Bankers’ performance was being monitored and some issues had been identified with meetings being held regularly to address specific areas of concern. 

 

RECOMMENDED –

 

(1)       T H A T the Treasury Management interim report for the period 1st April to 31st December, 2015 be endorsed.

 

(2)       T H A T the proposed 2016/17 Treasury Management and Investment Strategy including the below draft resolutions to be considered by Council on 2nd March, 2016 be endorsed:

 

  • The Authorised Limit for External Debt be set at £229,000,000 for 2015/16, £249,000,000 for 2016/17, £254,000,000 for 2017/18 and £256,000,000 for 2018/19.
  • The Operational Boundary for External Debt be set at £210,000,000 for 2015/16, £229,000,000 for 2016/17, £227,000,000 for 2017/18 and £227,000,000 for 2018/19.
  • The Section 151 Officer be given delegated authority within the total Authorised Limit and Operational Boundary as estimated for individual years to effect movement between the separately agreed limits for borrowing and other long term liabilities.
  • An upper limit is set on its fixed interest rate exposures of for 2016/17 of £220,000,000, for 2017/18 of £234,000,000 and for 2018/19 of £234,000,000 of its net outstanding principal sum on its borrowings / investments.
  • An upper limit is set on its variable interest rate exposures of £0 for 2015/16, 2016/17, 2017/18 and 2018/19 of its net outstanding principal sum on its investments.
  • An upper limit of £15,000,000 is set for total principal sums invested for over 364 days for 2015/16, 2016/17, 2017/18 and 2018/19.
  • The amount of projected borrowing that is fixed rate maturing in each period as a percentage of total projected borrowing that is fixed rate for 2016/17 be set as below:

 

 

Upper Limit

Lower Limit

Under 12   months

20%

0%

12 months   and within 24 months

20%

0%

24 months   and within 5 years

30%

0%

 5 years and within 10 years

40%

0%

10 years   and above

100%

0%

 

  • The Prudential Indicators set out in Appendix 1 be approved.
  • The Treasury Management Policy set out in Appendix 2 be endorsed

 

Reasons for recommendations

 

(1)       To endorse the Treasury Management Interim Report.

 

(2)       In acknowledgement that the matter was to be considered by the Audit Committee and Council. 

 

 

Attached as Appendix – Report to Scrutiny Committee (Corporate Resources): 9th February, 2016

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