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Agenda Item No. 10(a)

 

THE VALE OF GLAMORGAN COUNCIL

 

COUNCIL MEETING: 16 DECEMBER 2015

 

REFERENCE FROM CABINET:  16 NOVEMBER 2015

 

C2973      TREASURY MANAGEMENT (L) (SCRUTINY COMMITTEE – CORPORATE RESOURCES) -

 

Cabinet was provided with a mid-year report on the Authority's treasury management operations for the period 1 April, 2015 to 30 September, 2015 which was a requirement of the 2011 edition of the CIPFA Treasury Management in the Public Services: Code of Practice.

 

The Authority's existing borrowing strategy estimated that it would borrow £21,068,000 of new loans to support the capital programme for 2015-2016. The Council Officers in conjunction with the treasury advisors had and would continually monitor the prevailing interest rates and the market forecasts and adopt a pragmatic approach to changing circumstances in respect of its borrowing needs.

 

The Authority had borrowed an additional £63,155,896 to finance the Housing Revenue Account Subsidy (HRAS) buyout at a predetermined range of rates specified by HM Treasury, during 2015-2016.

 

The Head of Finance (Section 151 Officer) was pleased to report that all treasury management activity undertaken during the period complied with the approved strategy, the CIPFA Code of Practice, and the relevant legislative provisions.

 

The following tables summarised the treasury management transactions undertaken by the Authority during the first half of this financial year. All activities were in accordance with the Authority’s approved strategy on Treasury Management. The following table set out the monies borrowed / repaid during the period.

 

Loan Type

Opening Balance

Received

Repaid

Closing Balance

 

01/04/2015

 

 

30/09/2015

 

£’000

£’000

£’000

£’000

 

 

 

 

 

PWLB

90,266

63,156

(694)

152,728

Other Long Term Loans

6,002

0

0

6,002

Temporary Loans

100

0

0

100

Totals

96,368

63,156

(694)

158,830

 

  • 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. The rate paid on each loan was largely dependent upon the original duration of the loan and date taken out.  The loans taken out for the HRAS buyout were at a predetermined range of rates specified by HM Treasury.
  • 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 £2,000 and were made up of small individual sums that were invested with the Authority 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 7 day notice.

External interest at an average rate of 4.88% and amounting to £3,729,592 had been paid on the loans during the first 6 months of 2015/2016.

The Authority had made the following investments for the period 1 April, 2015 to 30 September, 2015 as set out below:-   

 

Borrowing

Institution

Opening Balance

Invested

Returned

Closing Balance

 

01/04/2015

 

 

30/09/2015

 

£’000

£’000

£’000

£’000

UK Local Authorities

 

 

30,000

42,000

(27,000)

45,000

Debt Management Office

51,125

765,905

(776,830)

40,200

Totals

81,125

807,905

(803,830)

85,200

 

 

 

 

 

Interest, at an average rate of 0.33% and amounting to £115,755, had been received from these investments for the first 6 months of 2015/2016.

 

As can be seen from the table above the Authority had invested with the Debt Management Office (DMO) or UK Local Authorities. This strategy was considered prudent considering the continuing pressures in the financial markets. The Head of Finance (Section 151 Officer) would always have regard to the security and liquidity of the investments before seeking the highest rate of return, or yield.

 

In light of the very low level of short term investment interest rates currently available, internal funds had continued to be used to finance capital expenditure to date. External funds had only been borrowed to finance the HRAS buy out earlier this year. Given the significant level of borrowing in the Capital Programme borrowing arrangements would need to be kept under review.

 

The Authority measured its exposure to treasury management risks using the following indicators.

 

Interest Rate Exposure

This indicator was set to control the Authority's exposure to interest rate risk. The exposures to fixed and variable rate interest rates, expressed as an amount of net principal borrowed were:

 

Limit

Actual

Met

Upper limit   on fixed rate exposures

      251m

159m

ü

Upper limit   on variable rate exposures

+/- 146m

-91m

ü

 

Fixed rate investments and borrowings were those where the rate of interest was fixed for the whole financial year.  Instruments that either mature during the financial year or had a floating interest rate were classed as variable rate.

 

Maturity Structure of Borrowing

This indicator was set to control the Authority's exposure to refinancing risk. The maturity date of borrowing was the earliest date on which the lender could demand repayment. The maturity structure of fixed rate borrowing as at 30 September, 2015 was:

 

Upper Limit

Lower Limit

Actual

Met

Under 12   months

20%

0%

1.21%

ü

12 months   and within 24 months

20%

0%

1.36%

ü

24 months and   within five years

30%

0%

16.90%

ü

Five years   and within 10 years

40%

0%

20.78%

ü

10 years   and above

100%

0%

59.75%

ü

 

Principal Sums Invested for Periods Longer than 364 Days

This indicator was to control the Council’s exposure to the risk of incurring losses by seeking early repayment of its long term investments.  The total principal sums invested to final maturities beyond the period end were:

 

2015/16

2016/17

2017/18

Limit on   principal invested beyond year end

£30M

£30M

£30M

Actual   principal invested beyond year end

0

0

0

Within   limit?

ü

ü

ü

 

This was a matter for Executive and Council decision

 

Cabinet, having considered the report and all the issues and implications contained therein

 

RESOLVED –

 

(1)       T H A T the Treasury Management mid-year report for the period 1 April, 2015 to 30 September, 2015 be noted.

 

(2)       T H A T the latest Treasury Management Indicators be noted.

 

(3)       T H A T the report be forwarded to the next Scrutiny Committee (Corporate Resources) for information.

 

(4)       T H A T the report be referred to Council for approval.

 

Reasons for decisions

 

(1)       To present the Treasury Management mid-year report as required by the CIPFA Treasury Management in the Public Services: Code of Practice.

 

(2)       To present an update of the Treasury Management Indicators that were included in the treasury management strategy.

 

(3)       To present the report to the next Scrutiny Committee (Corporate Resources) for information and allow Council to consider the report.

 

(4)       To allow Council to consider the report.

 

 

[View Cabinet Report]