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Agenda Item No. 7(d)

 

THE VALE OF GLAMORGAN COUNCIL

 

COUNCIL MEETING: 7TH MARCH, 2012

 

REFERENCE FROM CABINET: 29TH FEBRUARY, 2012

 

 

C1635           TREASURY MANAGEMENT (L) (SCRUTINY - CORPORATE RESOURCES) -

 

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

 

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

 

In order to manage this increased flexibility, Part 1 of the Local Government Act 2003 required local authorities to have regard to the Prudential Code, which had been developed by the Chartered Institute of Public Finance and Accountancy (CIPFA) as a professional code of practice.

 

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

  • were affordable
  • all external borrowing and other long term liabilities were within prudent and sustainable levels
  • the treasury management decisions were taken in accordance with professional good practice.

 

In March 2010, the Council adopted the CIPFA Treasury Management in the Public Services: Code of Practice which required the Council to approve a treasury management strategy before the start of each financial year.

 

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 was therefore asked to adopt the Treasury Management in the Public Services: Code of Practice 2011 Edition.  This would require some amendments to the Council’s Treasury Management Policy Statement and the Council was asked to adopt the revised policy statement as contained in pages 10-13 of Appendix 1 to the report. 

 

The Code of Practice and legislation required the Council to set out its Treasury Strategy and to prepare an Investment Strategy.  The WG 2010 revised guidance required the Council to approve an investment strategy before the start of each financial year and stated that authorities may produce a single strategy document, covering both the requirements of the CIPFA Treasury Management Code and WG’s guidance.

 

The proposed Treasury Management and Investment Strategy for 2012/13 was attached at Appendix 1 to the report.  The Treasury Management Strategy itself covered a rolling period of three years and was intended to link into 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.

 

Proposed Strategy 2012/13

 

As at 31st December 2011, other than an investment with two Local Authorities of £1m. each, the Authority had placed all its investments with the “Debt Management Account Deposit Facility” (DMADF).  The DMADF deposits were guaranteed by the UK Government.

 

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

 

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

 

Interim Report

 

Insofar as the Council’s treasury management operations entered into for the period 1st April 2011 to 31st December 2011 were concerned, all activities were in accordance with the Council’s approved strategy on Treasury Management.  The table below 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 were intended to assist local authorities in meeting their longer term borrowing requirements.  The above loans were all at fixed rates of interest and 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 were 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.  These totalled £4,700 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 represented those loans that were borrowed for a period of less than one year.  They were borrowed on notice.

 

External interest at an average rate of 5.63% and amounting to £4,343,440 had accrued on these loans for the first nine months of 2011/12.

 

The Council had made the following investments for the period 1st April to 31st December 2011:

 

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

 

Interest, at an average rate of 0.26% and amounting to £216,444 had been accrued from these investments for the first nine months of 2011/12.

 

This was a matter for decision by the Council.

 

RESOLVED -

 

(1)       T H A T the Treasury Management interim report for the period 1st April to 31st December 2011 be endorsed.

 

(2)       T H A T Council be recommended to adopt the Treasury Management in the Public Services: Code of Practice 2011 Edition. 

 

(3)       T H A T the revised Treasury Management Policy on pages 10-13 in Appendix 1 be endorsed and referred to Council to be adopted.

 

(4)       T H A T 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 decisions

 

(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.”

 

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