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Agenda Item No. 10(e)

 

THE VALE OF GLAMORGAN COUNCIL

 

COUNCIL MEETING: 4 MARCH 2015

 

REFERENCE FROM CABINET:  23 FEBRUARY 2015

 

C2649         TREASURY MANAGEMENT (L) (SCRUTINY COMMITTEE – CORPORATE RESOURCES) -      

 

Cabinet was provided with an interim report on the Council’s treasury management operations for the period 1 April, 2014 to 31 December, 2014 and requested to submit to Council for consideration the proposed 2015/16 Treasury Management and Annual Investment Strategy.

 

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 WG was prepared to fund via the Revenue Support Grant Settlement.  If the Council wished 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 the increased flexibility, Part1 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.

 

In March 2012 the Council adopted the CIPFA Treasury Management in the Public Services: Code of Practice 2011 Edition (the CIPFA Code), which required the Council to approve a treasury management strategy before the start of each financial year.

 

The Code of Practice and legislation required the Council to set out its Treasury Management Strategy and to prepare an Investment Strategy.  WG issued revised Guidance on Local Authority Investments in April 2010 that 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 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 link in to 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 could be used to support and record local decision-making.

 

Proposed Strategy 2015/16.

As at the 31st December 2014 the Authority had placed the majority of its investments with the 'Debt Management Account Deposit Facility' (DMADF) of the Bank of England. The DMADF deposits were guaranteed by the UK Government.

 

The Financial Services (Banking Reform) Act 2013 introduced investors bail-ins which would now replace government bail-outs in the UK. This change would leave Local Authorities and other large depositors as one of the few categories able to take losses. Such investments were therefore subject to the risk of credit loss via a bail in should the regulator determine that the bank / building society was failing or likely to fail. The current credit rating criteria of financial institutions used by the Authority for investment purposes were considered robust in determining whether a body was of high credit quality. It was therefore considered prudent at this time to make no changes to the existing investment counter parties / credit rating limits. It was proposed to increase the maximum total amount that could be invested with Local Authorities for 2015/16 to £50 million (currently £40 million), which allowed for increased flexibility. This approach was likely to result in the Authority's investment options for 2015/16 being with UK Government which included DMADF, Treasury Bills and Other Local Authorities. As always priority would be given firstly to the security and liquidity of the investment. 

 

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. 

 

Interim Report

The following table set out the monies borrowed / repaid during the period 1 April, 2014 to 31 December, 2014. All activities were in accordance with the Council’s approved strategy on Treasury Management.

 

Loan Type

Opening Balance

Received

Repaid

Closing Balance

 

01/04/2014

 

 

31/12/2014

 

£’000

£’000

£’000

£’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 represented those non-PWLB loans that were repayable at least 1 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 £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 represented those loans that were borrowed for a period of less than 1 year. They were 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 9 months of 2014/2015.

 

The Council had made the following investments for the period 1 April, 2014 to 31 December, 2014 as set out in the table below:-  

 

Borrowing Institution

Opening Balance

Invested

Returned

Closing Balance

 

01/04/2014

 

 

31/12/2014

 

£’000

£’000

£’000

£’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 9 months of 2014/2015.

 

This was a matter for Council decision

 

RESOLVED –

 

(1)       T H A T the Treasury Management interim report for the period 1 April to 31 December, 2014 be endorsed and referred to Council for approval.

 

(2)       T H A T the borrowing figure for the Authorised Limit for External Debt for 2014/15 included in the current Treasury Management and Investment Strategy be amended to £262,000,000 and be referred to Council for approval.

 

(3)       T H A T the borrowing figure for the Operational Boundary for External Debt for 2014/15 included in the current Treasury Management and Investment Strategy be amended to £244,000,000. and be referred to Council for approval.

 

(4)       T H A T the proposed 2015/16 Treasury Management and Investment Strategy attached at Appendix 1 to the report be endorsed and referred to Council for approval including the following specific resolutions:

  • 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 be 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 be 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 sums on its borrowings / investments.
  • An upper limit of £30,000,000 be 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 was fixed rate maturing in each period as a percentage of total projected borrowing that was 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 paragraph 4.1 and 4.2 in this Strategy be approved.

 

Reasons for decisions

 

(1)       To present the Treasury Management Interim Report.

 

(2)       To amend the 2014/15 figure for Authorised Limit for External Debt.

 

(3)       To amend the 2014/15 figure for Operational Boundary for External Debt.

 

(4)       To enable the Treasury Management and Annual Investment Strategy to be prepared as required by the Local Government Act 2003.

 

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