Top

Top

Agenda Item No.

 

 

THE VALE OF GLAMORGAN COUNCIL

 

 

CABINET: 23RD FEBRUARY 2015

 

REFERENCE FROM SCRUTINY COMMITTEE (CORPORATE RESOURCES): 10TH FEBRUARY 2015

 

 

“ TREASURY MANAGEMENT (S151O) –

 

 

The Head of Finance presented the report, the purpose of which was to apprise Members of the Council’s treasury management operations for the period 1st April to 31st December 2014 and to submit for consideration the proposed 2015/16 Treasury Management and Annual Investment Strategy.

 

Subject to the Scrutiny Committee’s comments, the matter would then be forwarded to Cabinet and thereafter Full Council for approval. 

 

The proposed Treasury Management and Annual Investment Strategy for 2015/16 was attached at Appendix 1 to the report.  The Treasury Management Strategy itself covered a rolling period of three years and was intended to include the Medium Term Financial planning process.  The Investment Strategy covered the next financial year.  The document also included a number of statutory Prudential Indicators that may be used to support and record local decision-making. 

 

Interim Report

 

Insofar as the Council’s treasury management operations entered into for the period 1st April to 31st December 2014 were 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

01/04/2014

£’000

Received

 

 

£’000

Repaid

 

 

£’000

Closing

Balance

31/12/2014

£’000

PWLB 89,267 0 1,600 87,667
Other Long Term Loans 6,002 0 0 6,002
Temporary Loans 100 0 0 100
Totals 95,369 0 1,600 93,769

 

Loans borrowed from the 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 represent those non-PWLB loans that are repayable at least one year or more from the date they are 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.  These totalled £2,100 and were made up of small individual sums that were 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 one year. They are borrowed on notice. 

 

External interest at an average rate of 5.54% and amounting to £3,915,405 had accrued on these loans for the first nine months of 2014/15.

 

The Council had made the following investments for the period 1st April to 31st December 2014 and are set out below:-

  


Borrowing

Institution

Opening

Balance

01/04/2014

£’000

Invested

 

 

£’000

Returned

 

 

£’000

Closing Balance

31/12/2014

£’000

Local Authorities 24,000 38,000 (28,000) 34,000

Debt Management

Account Deposit Facility

71,550 1,135,200 (1,158,750) 48,000
Totals 95,550 1,173,200 (1,186,750) 82,000

 

Interest, at an average rate of 0.30% and amounting to £208,828 had been accrued from these investments for the first nine months of 2014/15.

 

 

In referring to the Investment Strategy for 2015/16 the Head of Finance drew Members’ attention to paragraphs 4.3 detailing the authorised limits for external debt in respect of which it was recommended that the Council approves the authorised limits for its total external debt gross of investments as set out in Chapter 7 of the report.  In terms of financial forecasts, it was noted that Arlingclose continued to forecast the first rise in official interest rates in Quarter 3, 2015.  Their forecast had also detailed momentum in the economy, but inflationary pressures would be benign while external risks would have increased, which reduced the likelihood of immediate monetary tightening.  The pace of interest rate rises would be gradual and the extent of rises limited.  Short term running of gilt yields would be flatter due to the deteriorating Eurozone situation and an upward path in medium term was projected.  Estimated percentage rates for various options up to March 2018 were outlined on page 14 of the Strategy.

 

The Committee was also asked to note that in terms of investment funds, the Council’s in-house managed funds as at 30th March 2014 totalled £95m.  Of this figure, £30m could be treated as cash flow derived and therefore, was only used for short term investment options.  The remaining balance of £65m was made up of reserves, funds, etc. and it was intended that some £35m of these reserves would be spent by 31st March 2018.  Therefore, the estimated net available balance of £30m (£65m less £35m) could be viewed as core funds and could be considered for longer term investment (i.e. for periods greater than 364 days).  This represented the upper limit for principal sums invested over 364 days included in the table of Prudential Indicators at 7.1 to the Strategy report. 

 

The Committee was also asked to note in respect of debt rescheduling and repayments, the Public Works Loan Board

allowed Authorities to repay loans before maturity and either pay a premium or receive a discount according to a set formula based on current interest rates.  The Council may take advantage of this and replace some high rate loans with new loans at lower interest rates or repay some higher rate loans by using investment balances where this would lead to an overall saving or reduce risk. 

 

The Chairman, referring to negative interest rates as experienced within the Swiss banking system, queried whether the Council was going to review the financial advice that it had received and, if so, would the Council amend the Strategy accordingly?  In reply, the Head of Finance stated that the Council would continue to pursue a prudent and safe approach to its Investment Strategy through placing security and liquidity ahead of yield.

 

RECOMMENDED –

 

(1) T H A T the Treasury Management interim report for the period 1st April to 31st December 2014 be endorsed.

 

(2) T H A T the amendment of the borrowing figure for the Authorised Limit for External Debt for 2014/15 included in the current Treasury Management and Investment Strategy to £262,000,000 be endorsed and the amendment and any comments forwarded to Cabinet and thereafter referred to Council for approval.

 

(3) T H A T the amendment of the borrowing figure for the Operational Boundary for External Debt for 2014/15 included in the current Treasury Management and Investment Strategy to £244,000,000 be endorsed and any comments forwarded to Cabinet and thereafter referred to Council for approval.

 

(4) T H A T the proposed 2015/16 Treasury Management and Investment Strategy be endorsed and any comments forwarded to Cabinet and thereafter referred to Council for approval, including the following specific resolutions as set out in the Strategy Action Plan:

  • The Authorised Limit for External Debt be set at £262,000,000 for 2014/15, £280,000,000 for 2015/16, £296,000,000 for 2016/17 and £300,000,000 for 2017/18.
  • The Operational Boundary for External Debt be set at £244,000,000 for 2014/15, £262,000,000 for 2015/16, £277,000,000 for 2016/17 and £281,000,000 for 2017/18.
  • 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 for 2014/15 of £143,000,000, for 2015/16 of £251,000,000, for 2016/17 of £266,000,000 and for 2017/18 of £269,000,000 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 2014/15 of +/-£149,000,000, for 2015/16 of +/  £146,000,000, for 2016/17 of +/- £142,000,000 and for 2017/18 of +/- £138,000,000 of its net outstanding principal sum on its borrowings / investments.
  • An upper limit of £30,000,000 is set for total principal sums invested for over 364 days for 2014/15, 2015/16, 2016/17 and 2017/18.
  • 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 2015/16 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 paragraphs 4.1 and 4.2 in the Strategy attached at Appendix 1 to the report be approved.

 

 

Reasons for recommendations

 

(1) To present the Treasury Management Interim Report.

 

(2) To endorse the amendment to the 2014/15 figure for Authorised Limit for External Debt.

 

(3) To endorse the amendment to the 2014/15 figure for Operational Boundary for External Debt.

 

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

 

 

Attached as Appendix – Report to Scrutiny Committee (Corporate Resources): 10th February 2015