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Agenda Item No

 

The Vale of Glamorgan Council

 

Cabinet Meeting: 29th February 2012

 

Report of the Leader

 

Treasury Management

 

Purpose of the Report

1.             To provide an interim report on the Council’s treasury management operations for the period 1st April 2011 to 31st December 2011, to consider the adoption of the new Code of Practice and revised Treasury Management Policy and to submit for consideration the proposed 2012/13 Treasury Management and Annual Investment Strategy. 

Recommendations

1.             That the Treasury Management interim report for the period 1st April to 31st December 2011 be endorsed.

2.             That Council adopt the Treasury Management in the Public Services: Code of Practice 2011 Edition. 

3.             That the revised Treasury Management Policy on pages 10-13 in Appendix 1 be endorsed and referred to Council to be adopted.

4.             The proposed 2012/13 Treasury Management and Investment Strategy be endorsed and referred to Council for approval including the following specific resolutions as set out in the Strategy Action Plan:

·               The Authorised Limit for External Debt is set at £164,000,000 for 2011/12, £167,000,000 for 2012/13, £169,000,000 for 2013/14 and £172,000,000 for 2014/15.

·               The Operational Boundary for External Debt be set at £149,000,000 for 2011/12, £151,000,000 for 2012/13, £153,000,000 for 2013/14 and £155,000,000 for 2014/15.

·               The Director of Finance ICT and Property 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 for 2011/12 of £139,000,000, for 2012/13 of £140,000,000, for 2013/14 of £141,000,000 and for 2014/15 of £142,000,000 of its net outstanding principal sum on its borrowings / investments.

·               An upper limit is set on its variable interest rate exposures as an absolute value for 2011/12 of +/-£144,000,000, for 2012/13 of +/- £144,000,000, for 2013/14 of +/- £139,000,000 and for 2014/15 of +/- £137,000,000 of its net outstanding principal sums on its borrowings / investments.

·               An upper limit of £30,000,000 is set for total principal sums invested for over 364 days for 2011/12, 2012/13, 2013/14 and 2014/15.

·               An upper limit is set of 100% on net debt expressed as a percentage of gross debt for 2012/13, 2013/14 and 2014/15

·               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 2012/13 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

30%

0%

10 years and above

100%

0%

·               The Prudential Indicators set out in paragraph 4.1 and 4.2 in this Strategy be approved.

Reasons for the Recommendations

1.             To present the Treasury Management Interim Report.

2.             That the Treasury Management in the Public Services: Code of Practice 2011 Edition be adopted.

3.             That the revised Treasury Management Policy be adopted.

4.             The Treasury Management and Annual Investment Strategy is prepared as required by the Local Government Act 2003.

Background

2.             On 1st April 2004, the capital finance regulations came into force. Under these regulations, the Welsh Government (WG) provides the Council with a General Capital Funding grant and the Authority is also advised of a level of borrowing that the Assembly is prepared to fund via the Revenue Support Grant Settlement.  If the Council wishes to borrow in excess of this level to increase its capital expenditure, then it can. However, it will either have to find the additional costs of borrowing through savings in other services or increases in council tax.

3.             In order to manage this increased flexibility, Part1 of the Local Government Act 2003 requires local authorities to have regard to the Prudential Code, which has been developed by the Chartered Institute of Public Finance and Accountancy (CIPFA) as a professional code of practice.

4.             The key objectives of the fully revised Prudential Code are to ensure that the capital investment plans of local authorities:

·               are affordable;

·               all external borrowing and other long term liabilities are within prudent and sustainable levels;

·               The treasury management decisions are taken in accordance with professional good practice.

5.             In March 2010 the Council adopted the CIPFA Treasury Management in the Public Services: Code of Practice (fully revised second edition 2009), which requires the Council to approve a treasury management strategy before the start of each financial year.

6.             The Institute published a revised version of the CIPFA Code in November 2011 in light of the additional financial freedoms available to local authorities in the Localism Act 2011.  The Council is therefore asked to adopt the Treasury Management in the Public Services: Code of Practice 2011 Edition.  The new Code of Practice requires some amendments to the Council’s Treasury Management Policy Statement; the Council is asked to adopt the revised policy statement on pages 10-13 in Appendix 1.

7.             The Code of Practice and legislation requires the Council to set out its Treasury Strategy and to prepare an Investment Strategy. The Welsh Government (WG) 2010 revised guidance requires the Council to approve an investment strategy before the start of each financial year and states that authorities may produce a single strategy document, covering both the requirements of the CIPFA Treasury Management code and WG's guidance.

8.             The proposed Treasury Management and Investment Strategy for 2012/13, is therefore, attached at Appendix 1. The Treasury Management Strategy itself covers a rolling period of three years and is intended to link in to the Medium Term Financial Planning process. The Investment Strategy covers the next financial year. The document also includes a number of statutory Prudential Indicators that may be used to support and record local decision-making.

  Proposed Strategy 2012/13

9.             As at the 31st December 2011 other than an investment with 2 Local Authorities of £1 million each, the Authority has placed all its investments with the 'Debt Management Account Deposit Facility' (DMADF). The DMADF deposits are guaranteed by the UK Government.

10.        Uncertainties in the market are still prevalent and the economies of many countries are strained. This fragility is likely to continue for some time and with this backdrop it is felt that no changes should be made to the existing investment options / credit rating limits. This approach is likely to result in the Authority's investments for 2012/13 being placed with UK Government which includes DMADF, Treasury Bills and Other Local Authorities. As always priority will be given firstly to the security of the investment and secondly to its liquidity. 

11.        The Authority will 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 will be used to determine credit quality. In addition regard will be given to other available information on the credit quality of banks and building societies.

Interim Report

12.        In so far as the Council’s treasury management operations entered into for the period 1st April 2011 to 31st December 2011 are concerned, all activities 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
   01/04/2011     31/12/2011
  £'000 £'000 £'000 £'000
         
 PWLB   96,878   0 (686)   96,192
         

Other Long

Term Loans

6,010 0 (5) 6,005
         

Temporary

Loans

100 0 0 100
         
Totals 102,988 0 (691) 102,297

·               Loans borrowed from the PWLB are intended to assist Local Authorities in meeting their longer term borrowing requirements.  The above loans are all at fixed rates of interest. The rate paid on each loan is largely dependent upon the original duration of the loan and date taken out.

·               Other Long term loans represent those non-PWLB loans that are repayable at least 1 year or more from the date they are advanced.  The bulk of this debt is represented by two market loans of £2,000,000 and £4,000,000. The balance of this debt is local bonds. These total £4,700 and are made up of small individual sums that are invested with the Council for a number of years by members of the public.  

·               Temporary Loans represent those loans that are borrowed for a period of less than 1 year. They are borrowed on notice. 

13.        External interest at an average rate of 5.63% and amounting to £4,343,440 has accrued on these loans for the first 9 months of 2011/2012.

14.        The Council has made the following investments for the period 1st April 2011 to 31st December 2011  is set out below:-  

Borrowing

Institution

Opening Balance

    Invested

     Returned

Closing Balance

 

01/04/2011

31/12/2011

 

£’000

£’000

£’000

£’000

 

Local Authorities

 

0

3,000

(1,000)

2,000

Barclays Bank

 

 

6,573

255

(6,828)

0

Debt Management Account Deposit Facility

95,800

1,108,475

(1,087,775)

116,500

 

Totals

102,373

1,111,730

(1,095,603)

118,500

15.        Interest, at an average rate of 0.26% and amounting to £216,444 has been accrued from these investments for the first 9 months of 2011/2012.

Resource Implications (Financial and Employment and Climate Change, if appropriate)

16.        Money is borrowed for capital purposes and interest is charged to revenue accounts.

Legal Implications (to Include Human Rights Implications)

17.        Compliance with the Local Government Act 2003 and CIPFA’s “Code of Practice for Treasury Management in the Public Services” is mandatory.  

Crime and Disorder Implications

18.        There are no crime and disorder implications resulting from this report

Equal Opportunities Implications (to include Welsh Language issues)

19.        There are no equality implications resulting from this report.

Corporate/Service Objectives

20.        This meets the objective to provide effective treasury management. This is linked to the corporate objectives generally in that any savings made can be used to assist other services in meeting their objectives

Policy Framework and Budget

21.        This report needs to be referred to Council.

Consultation (including Ward Member Consultation)

22.        None.

Relevant Scrutiny Committee

23.        Corporate Resources.

Background Papers

CIPFA’s “Code of Practice for Treasury Management in the Public Services”, “The Prudential Code” and WG guidance on local authority investments

 

Contact Officer

Robert Ingram, Principal Accountant.

Tel (01446 709252)

 

Officers Consulted

 

Responsible Officer:

Director of Finance, ICT and Property

 

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